Registering a company does two useful things. It decides how you are taxed, and it puts a wall between the business and everything you own. The second one is the reason to bother. If you're not careful, you can remove all of the protection it gives you.
The usual caveat. I am one guy who has done this a number of times, this is a friend talking to a friend, and it is not legal advice.
What the wall is
Most countries have a very similar concept. A limited liability company in the United States, a limited company in the United Kingdom, a private limited in India. The job is to keep the liabilities of the business inside the business, so that when something goes wrong the people you owe cannot reach past the company and into your house.
Courts can, and do, sometimes decide, after the fact, that the wall was not ever really there. The phrase for it is piercing the corporate veil, and it is not rare. Across a number of studies of litigated cases, courts pierced somewhere between a quarter and a half of the time.
Publicly held companies are essentially never pierced, and in the two largest studies the handful of cases brought against them produced no piercings at all. The successful piercings are against closely held businesses, and corporations with a single shareholder were pierced about half the time.
I see a lot of founders doing things that, to me, obviously break the wall.
The thing that actually gets you
I used to think this was mostly about paperwork. Hold your board meetings, keep your minutes, file on time.
The data tends to paint a different picture.
The strongest predictor after outright fraud is mixing money. In one study of 929 cases, where a court found that personal and business funds had been commingled, it pierced about 81% of the time. Where it found funds had not been commingled, it only pierced about 6% of the time. Draining money out of the company for personal use tends to have the same effect (so don't fly the whole family to Hawaii for that trade conference). Fraud is worse still, at 88%, but fraud you already know not to do.
Corporate formalities barely register by comparison. When the same researcher ran the numbers, the presence or absence of functioning directors and officers was not significantly related to the outcome at all. And for limited liability companies in many US states, the statute says outright that failing to observe formalities is not a ground for imposing liability on a member.
Which flips the usual advice. Missing a board meeting is not what costs you the wall. Running your car, your groceries, your phone bill and two holidays a year through the company is what costs you the wall, because at that point a court can look at the arrangement and reasonably say there was never a separate business here at all.
So keep them very clearly separate. Business money on one side, personal money on the other, and a clean line between them. A separate account, a separate card, and a proper transfer when you pay yourself. It costs nothing other than the taxes, and it may save you a heck of a lot more than that.
FYI, the most recent numbers I could find run up to 2008, so things may have changed since then, although the underlying law hasn't really.
Register the company, keep the money separate, and go and do the work.
If you want to talk any of this through, message me on LinkedIn and I will give you thirty minutes.
Sources. Robert B. Thompson, "Piercing the Corporate Veil: An Empirical Study," 76 Cornell Law Review 1036 (1991), covering 1,583 cases decided through 1985. John H. Matheson, "Why Courts Pierce," 7 Berkeley Business Law Journal 1 (2010), covering 929 cases from 1990 to 2008, which is the source of the commingling and formalities findings. Peter B. Oh, "Veil-Piercing," 89 Texas Law Review 81 (2010), covering 2,908 cases. Jonathan Macey and Joshua Mitts, "Finding Order in the Morass," 100 Cornell Law Review 99 (2014). Revised Uniform Limited Liability Company Act, section 304(b), on formalities.