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Why Incorporation is Important for SMEs

If you are the owner of a small to medium-sized enterprise (SME) your corporate structure is just as important as if you were the owner of a multi-national company. You and your company ought not to be the same person, and incorporation under the Companies Act 2008 is the simplest way to accomplish this. While there are many reasons for doing so, the main objective is to separate the assists and liabilities of the company from your own.

Everyone is familiar with the designations Limited Liability Company (LLC), or Company Limited (Ltd.) which are one and the same. In The Bahamas, most limited companies are limited by share, rather than by guarantee. The “limitation” is the extent to which you are liable for the rights and liabilities of the Company. To put it another way, if you hold a 30% share in a company you are limited to 30% liability.

Here is why this is important. Starting a business is anything but an inexpensive process, and no matter the market every enterprise has its inherent risks. As an attorney, what we are doing when we incorporate a company is mitigating, and quantifying the risk. This protection is what allows a multi-millionaire to keep their wealth, despite having an exorbitant court judgment against their company. Only the companies assets are at risk, not the personal assets of the Owner.

Incorporating your business is also advantageous for your credibility and access to capital. SME venture capital enterprises are less likely to extend financing to unincorporated entities. As an individual, you cannot legally issue shares, and banks won’t extend business credit facilities to unincorporated entities. Having Ltd, or Limited at the end of your name conveys permanence, stability and commitment to your venture.

Corporations can subsist in perpetuity, and for the continuity of your business, this is hugely advantageous. Your incorporation documents can include contingencies as to what should happen in the event of the removal of a director, or shareholder or any other similar changes so that as individuals come and go the business remains intact.

While incorporation can be an expensive initial cost for SME’s, it stands to reason that the cost of incorporation is less than the cost of remedying the damage from any issues which may arise. It will keep your personal assets safe, keep your liability limited and soften the blow of any adverse circumstances which may arise.

I.A. Nicholas Mitchell
CML Chambers