Should I incorporate my business? Benefits of incorporating

At some point during the life of a small business, you will be faced with the question of whether or not to incorporate your company. Incorporating does come with some additional costs, such as a generally higher startup fee and some ongoing state and federal tax responsibilities, but for many businesses, the advantages of incorporation far outweigh the disadvantages.

Let’s take a look at some of those advantages so you can decide if they can benefit your business and offset the costs involved in onboarding.

Limited Liability Protection

Probably the most sought after aspect of incorporation is the limited liability protection that a corporate business structure provides. Without incorporation, a business owner is personally liable for any debt or contractual obligation of a business; If the business defaults on a loan and cannot repay it, the owner is responsible for that debt.

However, when incorporated, your company becomes a legal entity, capable of entering into contracts and obtaining loans on its own. There is a layer of protection between you and the company, known as the Corporate Veil, and as long as you run the company properly, keep careful records, and follow federal and state rules and regulations, the courts cannot seize your personal data. assets to pay for any default of the business.

Reputation

Incorporating your business means you can put that valuable “Inc.” or “Corporation”. at the end of your business name (sole proprietorships, in most jurisdictions, cannot add a corporate ending indicating a different business structure than the one they have), and this means that the public can see at a glance that you you are serious enough about your business to take it to the next level.

There is nothing wrong with being a sole trader, doing business under your own legal name. But some clients have a higher level of trust in registered corporations. It may not be fair, but it’s human nature, and by incorporating you can use this to your marketing advantage.

Longevity and structural integrity

When you join, your business takes on a life of its own. If, God forbid, it should pass, your business may continue to survive and pass on to other owners.

However, in a sole proprietorship environment, if the owner dies, the business also ends. Since a sole proprietorship is directly tied to one person, there is no way to break those ties and reconnect them with someone else. Certainly, a “successor” to the business can open a new business under the same name, but legally, there is no connection to the now-defunct sole proprietorship.

Also, unlike a sole proprietorship, a corporation allows ownership to be shared among many different people, up to 100 in the case of an S corporation; no limit on owners in the case of a C corporation.