Do you think about incorporating your business? It can be time-consuming and difficult. There are many reasons why you should choose this legal structure. This structure provides protection and could be financial help. It can also improve the reputation and image of your company and make it easier to transfer your operations. Established businesses, as well as new businesses, can both benefit from incorporation. (Non-profits can be considered one type of business that you may not be able to benefit from incorporation).
This article will reveal the top ten reasons to incorporate a business entity. This applies to both entrepreneurs and business owners who have been in business for a long time.
Best Times to Incorporate Your Small Business
1. Protect your personal assets from creditors
Every business fails. Small business owners may not want to consider this possibility but it is important to do so. Creditors could also pursue your personal assets if your business is insolvent and owe money to other entities and people. Your home, vehicle, savings, and investments could be at risk. Your personal and family life could be destroyed if your business fails to succeed.
I am not trying to scare anyone. This is more of a warning to you to make sure your personal assets and properties are protected in the event that something bad happens to your company.
Your personal assets will be protected against default on business debts by incorporating your business as a Limited Liability Company, S Corporation, or C Corporation. These business structures can protect your personal property from legal action and collection agencies if your business goes under. In other words, incorporation helps to ensure that you don’t lose your house or car because of your business failure.
Your personal assets will be linked to your business if you don’t incorporate them. This includes your current assets as well as future items. Your personal assets may be used to pay your debts if you file for bankruptcy in business. Personal bankruptcy can also be filed.
Your personal assets, including your equipment and business property, could be used to pay off your personal debts. Because it separates your personal and business lives, incorporating your small business will protect you and your business from all of these potentialities. This is one of the greatest reasons to incorporate.
2. Secure personal assets if your business is sued
Even the most meticulous and well-informed company can be sued. Lawsuits can be brought against companies for workplace injuries, property damage, or work-related errors.
Although proper insurance coverage can cover some of these risks but not, incorporation can provide additional protection. It can be used to prevent employees or businesses from being harmed. If they win a case and get a settlement, they can sue your company to prevent you from accessing your personal property.
If a customer slips or trips and you are not properly insured, you could be held personally responsible. They may take possession of your house, cars, savings, and other valuables in order to collect on a judgment against them. By incorporating your business, you can create a solid separation between your business and yourself. Your personal and family assets will not be at risk if your company is sued. Many small business owners incorporate because they fear personal liability.
3. Save on business taxes
A significant advantage to incorporating your business is the ability to take advantage of tax deductions available to income-taxing companies. Most business owners find corporate tax rules more advantageous than personal ones. These benefits are not available for sole proprietors or other unincorporated businesses. You can:
- Spread your losses out over a longer period
- Deduct startup and operational costs
- You can deduct benefits that you offer employees
If you are incorporated, your state and municipality may offer tax incentives. If you choose this legal entity, a tax expert with business knowledge can help you determine the tax benefits that you may enjoy.
4. Improve record keeping
To file tax returns, the Internal Revenue Service (IRS), requires that incorporated businesses provide significant information. This is a time-consuming task that requires extensive record keeping. This extra burden can be costly and time-consuming, but it shouldn’t be considered a burden. Many owners of incorporated businesses find having accurate records makes it easier to manage their business.
A second benefit to having better record keeping is the ability to have all the documents you need in order for you to apply for loans and get other forms of financing when you need them.
5. Raise capital
Companies can often incorporate to make it easier to raise capital or apply for loans. Potential investors will feel more confident in your business if you incorporate it. Incorporating can also be beneficial when it comes time to open a bank account for your business, and other financial services, and build business credit. To determine if it is a good idea to incorporate, consult a banker, accountant, or financial advisor.
6. Improve the reputation of your business
You can improve your business’ reputation by encouraging word-of-mouth, asking for positive Google reviews and ratings, and engaging in community activities. You can also incorporate it. Taking this step conveys to prospective customers that your company must be serious and not just a business that runs on a few dollars a day.
7. Protect your brand
Your brand is more than a logo and tagline. Your brand is more than your logo or tagline. It includes how you run your company, where you are located, what products and services your offer, and, perhaps most importantly, how your customers experience you.
It is an important step in protecting your brand and assets from being misused without your permission. Incorporation help you protect:
- Your business name.
- Your brand visuals include your logo, slogans, and colors.
- Your trademark is any word, phrase, symbol, or design element that distinguishes your business from other businesses.
To ensure your brand is properly protected, partner with a law office that has experience working with small businesses.
8. Increase the longevity of your business
Legally, you can protect your company for life by incorporating. Your business can be sold or closed at any time. If neither of these events occurs, however, your company will continue to exist in perpetuity as an independent entity, protected by incorporation. No matter what happens to its owners, the company will continue to be profitable and operational. This is important because:
- A long-term business strategy can be created and implemented.
- It is possible for the business to continue its operations without having to re-establish.
For any business looking to build a solid foundation for growth, the key benefit of incorporation is its perpetual existence.
9. Simplify business transfer
Let’s suppose you wish to leave your business to a relative, or when you are too ill or too old to continue running it. If the business is a corporation, it may be easier to transfer ownership or funds than if it were a sole proprietorship. It is easier to transfer funds and business owners when your business has its own identity and is incorporated.
10. Continue the business after you’re gone
Your business can be incorporated and continue to exist after your death. The business will continue as normal, although you’ll need to be replaced. Even if your business is passed to your heirs, this holds true. If your company is incorporated, it will not need to go through probate court.
You can also leave it to your heirs by making a will. Incorporating your company is a great first step to ensure that your company continues to exist after your death or passes it to your heirs. Work with an estate lawyer to obtain the legal advice that you need to make sure your will and all paperwork are properly set up so the transition is smooth.
Incorporating a company can make your business more efficient, protect it and improve its reputation. It is a great way to strengthen and stabilize the organization you have created. It is your duty to consult with your lawyer to determine if a corporation would be the right type of entity.