At some point during the life of a small business, you'll face the question of whether or not to incorporate your business. Incorporation does carry a few extra costs, such as generally higher startup fee and some continuing state and federal tax responsibilities -- but for many businesses, the pros of incorporating far outweigh the cons.
Let's take a look at some of those pros so that you can decide whether they might benefit your business and offset the costs involved in incorporating.
Limited Liability Protection
Probably the most highly sought-after aspect of incorporating is the limited liability protection a corporate business structure provides. Without incorporating, the owner of a business is personally liable for any debts or contractual obligations of a business; if the business defaults on a loan and cannot pay it back, the owner is responsible for that debt.
When you incorporate, however, your business becomes a legal entity, capable of entering into contracts and taking out loans on its own. There's a layer of protection between you and the business, known as the Corporate Veil, and as long as you're running the business properly, keeping careful records, and following federal and state rules and regulations, the courts can't seize your personal assets to pay for any defaults of the business.
Reputation
Incorporating your business means you're able to put that valued "Inc." or "Corp." at the end of your business name (sole proprietorships, in most jurisdictions, are not allowed to add a corporate ending that indicate a business structure other than the one they have), and this means the public can see at a glance that you're serious enough about your business to step it up to the next level.
There's nothing wrong with being a sole trader, doing business under your own legal name. But some customers have a higher level of confidence 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 incorporate, your business takes on a life of its own. If, God forbid, you should pass on, your business can continue to survive and be passed on to other owners.
Let's take a look at some of those pros so that you can decide whether they might benefit your business and offset the costs involved in incorporating.
Limited Liability Protection
Probably the most highly sought-after aspect of incorporating is the limited liability protection a corporate business structure provides. Without incorporating, the owner of a business is personally liable for any debts or contractual obligations of a business; if the business defaults on a loan and cannot pay it back, the owner is responsible for that debt.
When you incorporate, however, your business becomes a legal entity, capable of entering into contracts and taking out loans on its own. There's a layer of protection between you and the business, known as the Corporate Veil, and as long as you're running the business properly, keeping careful records, and following federal and state rules and regulations, the courts can't seize your personal assets to pay for any defaults of the business.
Reputation
Incorporating your business means you're able to put that valued "Inc." or "Corp." at the end of your business name (sole proprietorships, in most jurisdictions, are not allowed to add a corporate ending that indicate a business structure other than the one they have), and this means the public can see at a glance that you're serious enough about your business to step it up to the next level.
There's nothing wrong with being a sole trader, doing business under your own legal name. But some customers have a higher level of confidence 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 incorporate, your business takes on a life of its own. If, God forbid, you should pass on, your business can continue to survive and be passed on to other owners.
No comments:
Post a Comment