Incorporating a business is an important decision. You may be just starting and doing well, or you might not have even gotten started yet. It’s good for most businesses to incorporate in the United States – here are some of the benefits.
1. Protect personal assets from creditors
The problem with starting your own business is that accidents happen, and sometimes you can’t get out of a bad situation. By incorporating a business as an LLC or a C or S Corporation, you can protect your assets from the debts incurred by the company.
If you have not incorporated your business, it won’t be easy to separate your assets from the company. This may include personal property like a car or home and future investments. Incorporation can protect you from these scenarios.
2. Protect personal assets from lawsuits
When you start a business, it is essential to understand the risks of not incorporating a business. If someone trips or falls in your store and takes legal action against your company, they can also take assets from you. This means if they were successful in their lawsuit for damages, those losses would be on top of any money owed by the company.
If you’re sued, the only thing they can get their hands on are the business’s assets and it’ll be easier for you than if there was no incorporation.
3. Tax benefits
It is crucial to leverage the many tax deductions available to incorporated businesses. Enjoy tax benefits such as the:
- Ability to spread losses over a more extended period of time
- Ability to deduct start-up and operational expenses
- Ability to remove employee benefits
Local and state tax authorities may also offer incentives for corporations. That said, tax laws and regulations are complex, so it’s best to get advice from a certified accountant before claiming deductions.
4. Easier to raise capital
Incorporating is a smart move for any business because it can help you secure loans and raise capital. It also helps with your credibility in the eyes of banks, which means that if you are running a small business without much cash on hand, incorporating will make it easier to build up lines of credit.
5. Build a better reputation
Reputation is not just based on reviews or community work. Establishing your company as a legal entity can go far in establishing trust with potential customers, which benefits the business’s branding.
6. Protects your brand
A company’s brand is more than just a logo or marketing. It includes the way that they operate their business. Incorporating a corporation protects the name and the overall image as well.
- Your business name
- Your brand recognition (logos, slogans, etc.)
- Your trademark
7. Perpetual existence
Incorporating is an essential step in protecting your business. If you include, even if the company fails or goes bankrupt, it will still exist as a separate entity with its rights and privileges.
- Setting goals for the future is one of the most important things you can do when starting a business. It’s crucial to have long-term plans so that your company doesn’t stagnate.
- A business can stay in operation without constantly restarting and restructuring.
This means making decisions with the future in mind.
8. Easier to transfer your business
Let’s say you want to pass your business on as a sole proprietorship, but only if it is an event of sudden illness. It may be easier for the person inheriting your company and assets to set up with corporate structures than just as a sole owner. Incorporating a business will make it easier to transfer funds and ownership.
9. Your business can grow after you are gone.
A corporation is its entity. It will continue to exist even after you’re gone. A leadership change may be necessary, but the business doesn’t stop.
If you’re a business owner planning on leaving your company to your children, know that the probate court will first try and pay off any debts before anything else. That means if there are outstanding mortgages or loans, those might be paid back with whatever money was leftover from the sale of their assets after they passed away.
When properly organized, a business may not have to undergo probate proceedings. If you have questions, consult an attorney.
10. Stronger record keeping
While some may see extra record-keeping as an inconvenience, we find that having accurate records is worth the cost. When you incorporate your business, the government requires more information at tax time. You’ll need to provide this information each year and pay a bit more for a qualified accountant or bookkeeper to stay on top of it all.
Keeping records of your business finances is essential for securing loans and understanding where you can make improvements.
Final Thoughts on Incorporating a Business
The process of incorporating a business may seem daunting at first, but with all the resources available to help you through it, there is no need for worry. It’s not as time-consuming or expensive as many people think.