Theme: Features of finance of enterprises with different forms of ownership Plan: Introduction

2. Financial Characteristics of unincorporated entities
Difference Between Unincorporated And Incorporated Entities
Unincorporated entities refer to businesses that are not registered as corporations and do not enjoy the legal benefits that come with it. On the other hand, incorporated entities are businesses that have gone through the incorporation process and have been granted legal recognition as separate entities from their owners or shareholders.
Liability: One of the main differences between unincorporated and incorporated entities is the level of liability protection they offer their owners. Unincorporated businesses do not have a separate legal identity from their owners, which means that the owners are personally liable for any debts or legal actions taken against the business. In contrast, incorporated entities provide limited liability protection, which means that the owners’ personal assets are shielded from business liabilities.
Taxation: Unincorporated businesses are taxed differently than incorporated entities. In general, unincorporated businesses file taxes on their personal income tax returns, while incorporated entities are taxed separately as legal entities. This can result in different tax rates and deductions for each type of business.
Continuity: Another key difference between unincorporated and incorporated entities is their continuity. Unincorporated businesses are often reliant on their owners for their continuity, which means that they may not be able to continue operating if the owner becomes incapacitated or passes away. In contrast, incorporated entities can continue to exist regardless of what happens to their owners, which can provide greater stability and longevity to the business.³
Advantages And Disadvantages Of Incorporating A Business
When starting a business, one of the key decisions you need to make is whether to incorporate or not. Incorporating a business means turning your business into a separate legal entity. While it’s not mandatory to incorporate, doing so provides certain advantages and disadvantages that have to be considered.
Advantages
Personal Asset Protection: Incorporating your business separates your personal assets from your business assets. This means that if your business gets sued, only its assets are at risk, and your personal assets are protected.
Access to Capital: Incorporating your business increases your access to potential funding sources, including angel investors and venture capitalists. This is because investors are often more willing to invest in a corporation than in a sole proprietorship or partnership.
Perpetual Existence: As a separate legal entity, a corporation has a limitless lifespan. This means that even if the owners change, the corporation can continue to exist.
Lower Taxes: Incorporating your business can offer lower tax rates. As a corporation, you can deduct certain expenses, such as employee benefits and salaries, which can lower your taxable income.
Brand Protection: By incorporating your business, you obtain a trademark for your business name. This means that no other business can use your business name, which helps protect your brand.
Disadvantages
Costs: Incorporating a business can be more expensive than running a sole proprietorship or partnership. This is because corporations require more paperwork, legal fees, and administrative expenses.
Double Taxation: Another disadvantage is double taxation. As a corporation, you might be taxed twice – once on your business profits and again on your personal income when you take a salary or dividends.
Complicated Legal Formalities: Running a corporation requires complying with complex legal formalities, including filing annual reports, holding meetings, and maintaining minute books.
Overall, incorporating a business can offer several advantages and disadvantages. It’s important to consider your business needs and goals before deciding whether to incorporate or not.