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5 Reasons You Should Incorporate Your Business

By: SmallBizClub

 

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When starting a business you should keep in mind that the structure you choose will have legal and tax implications for your business. According to the Small Business Administration, a sole proprietorship is the most common legal structure chosen to start a business. In this case, there is no distinction between the business and you—the business owner. As a sole proprietor you are entitled to all of your small business’s profit; however the same is true for any losses it may accrue. You are responsible for the business’ debt and liabilities.

 
However, sole proprietorship is not the only structure available, and whether you are a small start-up or an established business there are many reasons why you should incorporate your business. Incorporation provides your business with a legal structure, declaring it an entity separate from you, the owner. Whether you form a corporation or LLC there are many advantages to consider.
 
Limited Liability
 
When you are in a sole proprietorship or even in a partnership, there is no separation between you and your business; in this case you are responsible for your company’s debt on a personal level. When you incorporate your business, you are essentially separating yourself from it. This allows you to protect your personal assets in case of a lawsuit or claims against your business.
 
 
In a properly structured and managed corporation or LLC, owners should have limited liability for any debts or obligations the business might acquire. This is the main reason business owners decide to form a corporation or an LLC.
 
Additional Credibility
 
Limited liability is not the only benefit that comes from forming an LLC or corporation. Another key benefit to incorporating your business is adding an “Inc” or “LLC” after your business name. In the mind of many customers, suppliers and partners this automatically boosts your credibility. Additionally in many states, other businesses may not file your exact corporate or LLC name in the state, which greatly strengthens your brand identity and marketing. This also helps your company from being confused with another business with a similar sounding name.
 
Perpetual Existence
 
As a sole proprietor or even in a partnership, a company’s life is tied to the life and participation of the owner(s). In the event an owner should die or leave the business, it would cease to exist. In the case of Corporations and LLCs, they can continue to exist if the ownership or management changes. Incorporating your business will ensure that your legacy and all the hard work you invested in your business will be preserved, should any changes in ownership occur.
 
Tax Flexibility
 
Incorporating a small business allows certain tax benefits and flexibilities. Although an LLC’s profit and loss is reported on the personal income tax returns of the owners, it also allows the option to choose to be taxed as a corporation. On the other hand, when a business owner sets up a corporation, he or she will be taxed on a personal and corporate level; nevertheless, a corporation can avoid double taxation of corporate profits by electing Subchapter S tax status.
 
 
Deductible Expenses
 
Corporations or LLCs may deduct regular business expenses, such as employee salaries, before they allocate income to owners. When you are just starting out as a small business, any deductible expenses will be a huge help to your limited budget.
 
As a business owner, you have invested a lot of money, work and effort in building up your company. This is why it is important to shield yourself from any debt or liability your company may accumulate. Not only does incorporating your business protect your company, it protects you as well.
 
Dixie SomersAuthor: This article was written by Dixie Somers, a freelance writer who loves to write for business, finance, and women’s interests. She lives in Arizona with her husband and three beautiful daughters. Professionals like those at BizCentral USA can help you determine which legal structure best suits your business’ needs if you need assistance.
Published: February 10, 2015
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