Advantages of Changing from a Sole Proprietorship to a Corporation

For any business owner, switching from a single proprietorship to a corporation is a huge step. Although a sole proprietorship is the most basic type of business structure, it eventually becomes necessary to convert to a corporation. This post will go into detail about the various benefits of doing this.

First off, the restricted liability protection that a corporation offers is one of the biggest benefits of switching from a sole proprietorship. In a sole proprietorship, the owner is held personally responsible for all debts and losses incurred by the company. This implies that the owner’s personal assets may be at jeopardy if the company is sued or declares bankruptcy. However, as a corporation, the firm is a distinct legal entity, thus the shareholders are not personally accountable for the debts and losses of the business. For enterprises engaged in high-risk operations like manufacturing or construction, this protection is especially crucial.

Second, businesses can acquire financing more easily than single proprietorships. This is so that businesses can raise money by selling their stocks and bonds to investors. However, sole owners are only able to access their own funds and bank loans. Corporate entities have quicker access to finance than sole proprietorships, allowing them to participate in business expansion prospects.

Thirdly, companies can endure even when their owners or stockholders pass away or discontinue operating the company since they have a continuous existence. Due to this, the company has certain stability and continuity that single proprietorships are unable to enjoy. Furthermore, because ownership may be transferred through the sale of stocks, corporations may make ownership transfers simpler than sole proprietorships.

Let’s now address the pertinent queries. The Philippine Corporation Code permits one-person corporations (OPCs). But there are some limitations on who can create an OPC. For instance, businesses involved in the practice of professions like law, medicine, and accounting are not permitted to establish an OPC.

An OPC’s advantage is that it is simpler and less expensive to set up and manage than a traditional corporation. Additionally, it offers the owner some limited liability protection, which is a huge benefit for new business owners with minimal funding. A sole proprietorship may also be able to profit from incorporation without having to give up control of the company to other shareholders by using an OPC.

In conclusion, switching from a sole proprietorship to a corporation has a number of benefits, including increased financial access, limited liability protection, and eternal life. OPCs can be a desirable choice for business owners who want to profit from incorporation without giving up control of their company to other shareholders, notwithstanding the limitations on who can form them. The choice to convert from a sole proprietorship to a corporation should ultimately be based on the particular requirements and objectives of the business owner.