One of the most common ways to try and save money among self-employed people, entrepreneurs, and people who generally make money outside of formal corporate structures is choosing not to officially register their operation as a formal business entity. The cost-saving implications of not officially registering your business are in many instances understandable because in addition to making sure your registered business remains legally compliant, the process of registering the business in itself costs a bit of money. How much it actually costs to officially register differs according to which country your business will be registered in, but there are always some costs involved.
Forgoing formal registration of your business also means certain national or state regulations specifically aimed at formal businesses don’t apply to you, like perhaps otherwise having to contribute to your state’s equivalent of the Job Seekers Assistance Fund, through contributions worked into your business’ tax bill. Formal workplace health and safety regulations can also be quite costly to have to adhere to; something which is likely a non-entity if you’re not formally registered.
Why Register a Formal Business then?
For all the cost-saving benefits you can inherently take advantage of by simply choosing not to formally register your business operation, in the long run it makes for better practice to register your business.
Personal Legal Protection
Perhaps the biggest reason why you’d want to make the existence of your business official is the personal legal protection it offers. Your economic activities are otherwise directly tied to you as an individual, so heaven forbid, but if someone were to get injured as a result of your economic activities, you’d be personally liable if you haven’t officially registered a business. Registering a business separates you personally from the business and should your registered business run up debts or incur any other liabilities, your own personal assets cannot be tied to the business and subsequently seized in an attempt to pay off those debts and other liabilities. You’re obviously still responsible for all activities and consequences of your business operations, but only in your capacity as a director or business owner, and not in your personal capacity.
Whichever field or industry you’re involved in to generate your income, your personal reputation and acclaim can only take you so far. Also, it can take one bad experience with just one of your customers or even a competitor to undo all the hard work you put into building up your reputation. This is where the legitimacy that comes with officially registering your business becomes apparent because a formally registered business’ credentials can be verified by vigilant prospective clients who are otherwise not too comfortable entrusting an individual with their money.
If you’re involved in the research and development of new products, services and solutions, the legitimacy that comes with registering your business also opens you up to benefits such as qualifying for R & D tax credits. As an individual, it would otherwise prove to be very difficult to demonstrate your compliance with the regulations surrounding the requirements for you to even qualify for Research & Development grants and perhaps some other sources of investment and funding.