Incorporating a business means establishing it as a separate legal entity from its owners. Many entrepreneurs and small business owners consider incorporating their business – and, then, don’t.
Usually, owners hesitate because they are worried about the cost of incorporation, the tax liabilities or the rules they have to follow and records they have to keep. However, you shouldn’t let fear stop you from taking advantage of these important benefits of incorporation,
Liability protections
One of the most significant benefits of incorporating a business is liability protection. When you incorporate your business, your personal assets are protected from business liabilities. In other words, if your business faces any lawsuits or issues with creditors, your personal assets such as your car or house will not be at risk.
Increased credibility
Incorporating your business can also increase its credibility in the eyes of customers, vendors and suppliers. Incorporation gives the impression of a more established and reliable company, and that can also make it easier to secure investors or funding.
Tax benefits
Incorporating your business can also provide tax benefits, including reduced self-employment taxes and the ability to retain earnings in the corporation and build upon what you already have. You may also gain additional tax benefits through the ability to deduct additional operating expenses and spread your losses out over time.
Perpetual existence
A corporation has what’s called a “perpetual existence,” which means (unlike a sole proprietorship), the company continues to exist even if the ownership changes or if the owner passes away. This makes the corporation a more stable entity than a sole proprietorship or partnership, which also makes it easier to raise capital from a lender.
Brand protection
Incorporating your business can also provide legal protection against trademark infringement, intellectual property theft and other issues that can negatively affect your brand. Incorporation allows you to protect your business name and logo and prevent others from using them without permission.
Is incorporation right for every small business or start-up? No. It takes an experienced eye to look closely at the situation and determine what business structure is really the most advantageous. Fortunately, legal guidance is available to help you decide on the best direction for your company’s future.