One of the most common questions asked when people seek legal advice online is whether or not it is compulsory to get their business registered. The answer is both a no and a yes. What this means is that there are certain types of business which are not mandated by the law to be registered whereas other types are.
For example, sole proprietorship registration is not compulsory whereas a company or a partnership has to be registered to be legal in the eyes of the state.
However, nowadays it is recommended that all businesses, barring a few exceptions, get themselves registered according to the laws of the state where they operate. There are quite a number of reasons why experts who give legal advice online and offline recommend registration. The most important of those reasons are listed below:
- Establishing Legal Identity
The process of registration for a business imparts it with a legal identity. What that means is that the business comes into existence in the eyes of the law and hence, can enjoy legal protection and benefits which would be otherwise impossible for the business to enjoy. For business types other than a sole proprietorship, registration is compulsory for the business enterprise to be considered lawful. The legal identity of business also ensures that any dispute concerning any aspect of the business can be contested in a court of law.
- Ensuring Limited Liability
Limited liability is one of those magical concepts which imparts protection to the personal assets of a business owner in case the business runs into any liability. This happens because, on registration, all types of business except sole proprietorship become a separate legal entity, and hence there is a demarcation between the business owners/managers/directors and the business itself.
- Facilitating Loans
While running sole proprietorship’s are legally allowed to get loans for business processes, most banks do not lend money to unregistered business enterprises as it becomes akin to personal loans. Having a separate identity of the business through sole proprietorship registration makes the process of applying for loans and getting them sanctioned becomes much easier. Banks cannot legally lend money to any other type of business without a registration certificate.
- Accumulating Goodwill
A business makes its ‘name’ in the market when it operates efficiently and provides value to its customers over a sustained period of time. In layman terms, this recognition is known as goodwill generated by the business. Obtaining a legal and separate name for the business helps to create a separation between owner and business and thus protects the reputation of the business, especially in case of sole proprietorships.
- Laying the Framework for Continuity
A registered business outlives its owner. What this means is that as soon as a business is registered, it can legally be passed on from one person to another. This ensures that in case the original owner is not in the capacity to continue being at the helm of the business, retires or passes away, the business can continue to exist in the same legal capacity.
These are only a few of the various reasons why every business should be registered. The benefits of business registration far outweigh the cost of registration. With good corporate legal counsel, even the process of registering a business becomes smooth and simplified.