Why Start A Design Company?
This isn’t about whether to start a design business, this is about taking the next step to start a design company.
A company, in the eyes of the law, is a separate legal entity. It is taxed separately, can be sued, has an indefinite life (unlike you or me) and ownership can be passed on easily.
Question: Why start a design company when I already have a business?
Answer: A company is very different from a business. The legal structure of companies allows them to raise capital and reward shareholders very differently from individuals.
Here are TEN reasons to start your own company.
- Business name protected. Having your business name (ABC Design Corporation) as your company name prevents anyone else from using it. (There are some limitations across state or provincial boundaries unless registering your company federally).
- Credibility. Companies often feel more comfortable doing business with other companies. To get bigger contracts you will often have to work with bigger clients and that means companies.
- Stronger branding. When your business name is protected it strengthens your brand allowing you to invest more in it with a reduced financial risk.
- Earn more. As the owner of a company you have the ability to leverage the hard work of your employees to boost your own income.
- Employees. Finding and retaining great employees is hard. The security of working for a company makes recruiting that little bit easier.
- Lower risk than being an employee. In times of economic turbulence you are master or mistress of your own destiny. You don’t suddenly turn up for work one day and find your department outsourced.
- Corporate culture. You can create the corporate culture and structure that suits you, your values and ambitions.
- Protect yourself from liability. If things do go wrong your personal assets are independent of the company, so in a worst case scenario you do not lose your home, savings and personal property.
- Take advantage of business tax deductions. As a corporation there are huge benefits to be had from deductions and tax allowances not available to individuals or partnerships. In particular health cover and pension contributions.
- Pay yourself with dividends. By including dividends in the mix not just payroll lowers your personal tax payments. When you set up the right type of Corporation (S type not C in the USA) you can shelter the profits of the business and pay lower taxes.
NB, make sure you consult with a corporate lawyer or qualified accountant (CPA or CA) before setting up your corporation to ensure you maximise the benefits.
Question: If I’m already running a design business (as a freelancer or sole proprietor) when should I start my company?
Answer: That depends … having your own company does bring some additional legal responsibilities, however, the advantages far outweigh the disadvantages once you get beyond a certain size. In my experience don’t leap into starting your own company with its additional responsibilities when you first start your design business. Once you have been running your business for about six months as a sole trader or partnership you will know whether it is something you want to do going forward. This is the point to look seriously at starting a corporation.