Four Reasons to Consider Incorporating Your Business

Whether you have been running your business for some time or you are just getting started, there are plenty of reasons to consider incorporating your company. Below are just a few reasons why you might want to consider making this type of move.

1.  Personal Asset Protection

When you operate as a sole proprietorship or partnership, there is no real legal separation between you and your business. In other words, your personal assets are at risk if your company runs into trouble, such as conflicts with vendors or employees, lawsuits, or other disputes with creditors or competitors.

A corporation or LLC is a separate legal entity. That means that it can own assets outright instead of having to go “through” you to own things. Likewise, any liabilities are the company’s alone—only the assets that the company holds are at risk in a dispute.

2.  Succession Planning

If you want to be able to sell your business or pass it on to your children, then you may need to create a separate legal structure to take that type of action. When you have a sole proprietorship, there is no separation between you and the business. You are the company. Because of that, there is no meaningful way to pass the business on to someone else. If you are considering retirement or putting your company up for sale, incorporating will help you make that transition in a way that will add the most value for you.

3.  Help with Financing and Credibility

Banks and other lending institutions are sometimes more willing to lend money to companies that are incorporated. This is true for a couple of reasons, but perhaps the most important is that incorporating shows a lender that you are serious about your business and intend to operate it for years to come. Having an incorporated business name builds credibility outside of lending relationships as well, signaling to your customers that yours is a legitimate, established enterprise.

4.  Tax Savings

You may have heard that corporations suffer from “double taxation,” so it is not a good idea to incorporate if you want to save money on taxes. However, businesses can deduct all of their expenses before being taxed, and that includes salaries. This means that if you are getting a salary from the corporation, that will be not be taxed at the corporate level. You will still pay tax on the income you receive on your personal tax return, but that would be true regardless of whether you incorporated.

If you want to learn more about the pros and cons of incorporation and the different types of corporation entities you can form, give our team a call. We can help you determine which business structure is the right one for you.

Written by Integrated General Counsel

Our focus includes handling a variety of corporate matters and also includes litigation in state and federal courts. Our current practice includes providing transactional services and representing a variety of small and medium-sized companies as their outsourced general counsel.