Should You Incorporate Your Business?

Why should you incorporate your business? Because a corporate structure can offer many advantages to you, depending on the business you are starting and your future growth plans. Unlike other business structures, a corporation is chartered by the state in which it is headquartered and is considered by law to be a unique entity, which is separate and apart from those who own it. A corporation can enter into contracts, it can be sued and it can and will be taxed. The owners of this structure are considered shareholders. These shareholders elect a board of directors to oversee the key decisions and policies of the corporation. Because the corporation in effect has a life of its own, it does not dissolved when ownership changes.

Advantages

• One you incorporate your business, you as a shareholder have limited liability when it comes to debt and successful lawsuits against the company. Although shareholders can only be held accountable for their investment in stock of the company, officers can be held personally liable for their actions such as failure to withhold and pay employment taxes.
• Corporations can raise additional capital for the firm through the sale of stock. The sole proprietorship typically has a tough time raising funds.
• The corporation can deduct the cost of benefits paid to officers and employees while some other business structures cannot.
• A corporation can elect S corporation status but it has to meet certain criteria in order to do this. If it does get S Corporation status, it can then be taxed similarly to a partnership in that all of the profits can flow through to owner’s personal tax return.

Disadvantages

• The corporation requires a lot more time and money to set up than either a sole proprietorship or a partnership.
• The corporation has more paperwork to deal with since it is monitored by federal, state and local agencies.
• If you incorporate your busisness, you may be subject to higher taxation or even double taxation. Because dividends are not deductible from business income, they can be taxed twice...not a happy prospect.

Check Your State’s Rules on Incorporating Your BusinessYou may be asking yourself, how do I incorporate my business? The answer is that there is no set way because every state has its own rules on how to incorporate. Typically, you can take care all of the incorporation paperwork yourself, in fact, you can even incorporate yourself...John Smith Inc.! There are also many options today to incorporate online. Before you do either of those, however, we suggest that you sit down with your lawyer and your account and go over the pros and cons on if you should incorporate your business. There are other structures that you can select that may be better suited to help you achieve your hopes and dreams and only a skilled lawyer or accountant should help you in determining your next step.

Key Links to Your State

Here are key links to your state below:

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How to start a business? Click here for pros and cons of many types of business structures.

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