Research shows that individuals often start online businesses based on prior wisdom, using personal accounts for finance and revenue. While convenient initially, this approach can lead to long-term challenges, suggesting that running the business as a corporation could be a more sustainable option.
Below are some pros of running a cross-border e-commerce business as a corporation. Along with it, some cases are presented to highlight difficulties arising since starting it as an individual. This provides some pointers on how you might proceed with any new online businesses you might be considering starting.
1. Credibility and Trust
Operating as a corporation can enhance your business’s credibility and professionalism, especially in the international marketplace. Many customers, particularly when engaging in cross-border transactions, prefer dealing with established and reputable corporate entities. Forming a corporation can instill trust in potential customers and suppliers, as it demonstrates a level of commitment and stability.
2. Limited Liability
One of the primary advantages of forming a corporation is limited liability protection. As an individual, you are responsible for any debts or legal liabilities incurred by your business. However, by operating as a corporation, your personal assets are generally protected from business-related obligations. This means that if your business faces legal issues or financial challenges, your personal assets such as your home or savings may be shielded from potential claims.
3. Access to Funding
When it comes to raising capital, operating as a corporation offers more opportunities compared to an individual. Corporations can issue shares of stock, allowing for the sale of equity to investors. This can provide a means to secure funding for expansion, marketing, inventory, or other business needs. Additionally, corporations may find it easier to obtain business loans or credit from financial institutions due to their structured legal status and potential for higher revenue generation.
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4. Tax Flexibility
Corporations have more flexibility in managing their tax obligations. They can take advantage of various tax deductions, allowances, and strategies to potentially reduce their overall tax burden. This includes deducting business expenses, optimizing tax treatment for international transactions, and benefiting from corporate tax rates, which can be more favorable in some cases compared to individual tax rates.
5. Succession and Continuity
A corporation offers better succession planning and continuity options. As a separate legal entity, a corporation can endure beyond the lifespan of its owners or shareholders. This allows for easier transfer of ownership, inheritance, or selling the business, providing a smoother transition in the event of retirement, partnership changes, or the need to exit the business.
6. Regulatory Compliance
Operating as a corporation helps ensure compliance with legal and regulatory requirements. Cross-border e-commerce involves navigating various laws, regulations, and tax obligations from both the home and target countries. A corporation provides a clear structure for managing these obligations and maintaining regulatory compliance, minimizing potential legal risks.
However, it is important to note that the decision to operate as a corporation or an individual should be based on various factors such as the size and scale of the business, anticipated growth, legal and tax implications, personal liability concerns, and individual circumstances. Consulting with a legal or tax professional who can provide tailored advice based on your specific situation is highly recommended.