The Many Benefits of Company Formation

For many successful small businesses there will come the inevitable point where the question has to be asked, should the small business become a registered company?Company formation is something that lots of people strive for as it indicates a sign of success and demands some respect in many areas of the business world.

There are many aspects to consider when making the decision to go down the route of company formation and although it is not the right move for everyone for many it can be the platform to greater things.Company formation depends on several factors not least of all the company's annual earnings.

The process of registering as a company is straightforward but can seem longwinded as there are several documents that need to be completed and depending on whether you chose to register as a private or a public company.The company formation process for both is simple but with subtle differences that can often be confusing.

The process involves, among other things, choosing a company name, selecting an area to trade from and a business type, registering any company directors and specifying what type of shares in the company are offered.

It is worth considering taking advice on company formation from specialists.There are lots of companies that now offer to take care of the whole process for you, for a fee.If you are unsure about the process or do not feel confident to handle the whole process alone it may be that getting help will ensure that no mistakes are made which can slow the process down and even incur financial repercussions.

Once registered you are obliged to adhere to certain rules and guidelines, the company name must be clearly displayed outside any business premises and the company name and registration details must be visible on all company correspondence; letters, invoices etc.Specialists in company formation will be able to advise on all these matters and many more.

There are four types of company:

1.

Private company limited by shares - A private limited company has a share capital.Shares cannot be offered for sale to the general public.The liability of its member is related to the amount unpaid on shares that each member holds.

2.Private company limited by guarantee - Members do not purchase shares but agree to contribute to the company's assets if the company is ever wound up.

3.Private unlimited company - This type of company can have shares but doesn't have to.There is no limit to members' liability and this type of company does not have to offer up as much information as other types.

4.Public limited companies are identified by several factors.A public limited company has a share.Shares may be offered for sale to the general public and can also be quoted on the stock exchange.The liability of its member is related to the amount unpaid on shares that each member holds.

In an increasingly litigious world many small and medium sized businesses are seeing the insurance benefits of company formation.Registering as a company legally separates the obligation of the individual and the business and recognizes the fact in law.This is useful for unseen circumstances including accidents to employees.

As well as the benefits of liability there are tax benefits.Often the rate of tax can be brought down considerably after the process of company formation.Raising money for a registered company is easier as it involves selling shares.It is also easier to value a registered company as it does not involve an individual's assets and so is easier to measure.

About the Author

Dominic Donaldson is an expert in the company formation industry.

Find out more about company formation and how it could benefit you.

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Owner Builder Credit Scores and the Effect On Financing Fees

Owner builder construction loans have become harder to find as the mortgage industry has all but done away with these highly specialized products.The owner builder programs that remain strong are using the industry titan, Fannie Mae, for rates and pricing.How does this affect you?Your loan will have higher financing fees (discount points) wrapped into it if your credit score is not strong.

In the world of owner builder construction, the borrower already expects to pay more for the loan than he would expect to pay for a typical construction loan or certainly than a simple purchase or refinance mortgage.In fact, these higher costs are not of utmost importance, because they are offset against the hardy amount of savings that an owner builder will earn by cutting out the costs of a general contractor during construction of the new home.

However, every little bit helps.And, if an owner builder can avoid additional fees that come with lower credit scores, then it will help to maximize the amount of sweat equity that gets built into the home.Obviously, the borrowers with FICO credit scores above 740 will have nothing to worry about.It is the borrowers with credit scores that fall below 700 especially that will need to be prepared to wrap additional discount points into their loan.So, let's take a look at why this is happening, and then determine if the construction is still worth the extra fees.

The bulk of the remaining owner builder construction loan programs across the country are selling their end products to Fannie Mae, the mortgage industry titan who stimulates lending by purchasing bundles of mortgages from banks.This is not unusual.In fact, it's the typical outlet for most lenders in the U.S.The issue for owner builder loans, though, is that Fannie Mae has set some strict pricing guidelines that correspond directly to the borrower's FICO credit score and loan-to-value ratio.

With owner builder construction, the borrower typically builds his home for less than 80% of the house's appraised market value.Therefore, when looking at Fannie Mae's guidelines for pricing, it is very helpful that owner builders don't have to concern themselves with any loan-to-value ratios above 80%.This truly saves them from a lot of the higher pricing tiers.

However, it is the credit scores that must be closely observed.For example, using the 80% loan-to-value ratio, a borrower who has a credit score below 700 can expect to wrap one extra discount point into their loan.If your credit score is below 680, wrap an extra 1.75 to 2.25 points into the loan.One point is equal to one percent of the loan amount.Therefore, if your loan amount is $200,000, then wrapping an additional 1.75 points into your financing will mean a loss of $3,500 in equity in your home when it is completed.

So, is it worth it for an owner builder with a lower credit score?The answer to that question depends on the amount of equity that he plans to save during construction of his home.For example, on a $200,000, you may save $40,000 by eliminating the costs of an owner builder and managing the project yourself, perhaps even doing some of the minor parts of the labor.In this case, the extra $3,500 wrapped into your loan amount shouldn't make a big difference to you.

It is important to note that these owner builder construction loans make allowances for a borrower to wrap these fees and closings costs into the loan amount, so you won't have to pay them out of pocket.In the example above, the extra $3,500 in discount points that occurs due to a lower credit score will not mean that you must pay an extra $3,500 at closing.It simply means that an extra $3,500 is being financing for you.In the long run, you can equate this to $3,500 less equity that you get to build into your home by being an owner builder.

In addition, the extra fees may be well worth it to you if the owner builder construction loan has a one-time-close feature, meaning you won't have to go through a second round of closings once your home is built.If you can convert straight to your permanent financing without having to worry about a second round of closing costs, then the extra fees in the one-time-closing are not overly troublesome.For an owner builder about to save a lot of money during construction, the financing program that allows him to do so will still be well worth it.

Therefore, if you are considering applying for an owner builder construction loan that will allow you to build your own home without requiring a general contractor, be prepared to have higher costs associated with the loan than you would have if you were buying a house or using a fully approved builder for construction.However, remember to look at the big picture and calculate the overall reward of the substantially lower construction costs for owner builder projects.

About the Author

Chris Esposito provides owner builder construction loans through the Owner Builder 101 program, designed to help you build your home without paying the costs of a GC.

For more info about the process and financing for an owner builder, go to www.OwnerBuilder101.com, or call (877) 876-3688.

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