Incorporate Your Business? Weight Pros & Cons for You

Incorporate your business? A corporation could offer many benefits to you and your new business, but you must carefully weight the pros and cons of such a move. When Mark Zuckerberg founded Facebook, he had big plans for the concept and an Inc. after the Facebook name made sense. If you are planning for a small, one- or two-person company, there are other options that might make more sense than incorporating your business. 

Unlike other business structures, a corporation is chartered by a 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 also be formed in another state and then seek permission to operate in other states.] 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.

Incorpoate Your Business: Advantages

Once 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.

Incorporating Your Business: 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.


Go to Corporate Kit Page to get your Corporate Seal and the documents you will need!

Check Your State’s Rules to Incorporate Your Business

You 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.

7 Quick Steps to Inc. Your Business

  1. Weigh the pros and cons of incorporation. Use a business structure that is best for you. For example, if you will launch a high-risk rock-blasting business, definitely incorporate. If you are starting a knitting business in which you will sell scarfs at flea markets, you may want to create a sole proprietorship.
  2. Create a board of directors. It could be you and your husband or a friend.
  3. Pick a state in which to incorporate. Nevada and Delaware have the most lenient incorporation laws, however, if you are living in a state other than Nevada and Delaware and incorporate in either, you will still need to file tax forms in the state where you are doing business. For example, if you live in New York and create a Delaware corporation, you will have to apply as a foreign business corporation for authority to do business in the State of New York.
  4. Once you pick a state, then determine if the name you want to use is available. Go to the state's website to its department of corporations…names vary depending on state. Sometimes a state will ask you to also submit a second choice, in case the first is taken. Typically, you can "reserve" the name at this time.
  5. Do a quick check on your own before submitting the name or names to the state. Go to a website like GoDaddy.com and do a search for a web address of the name you want to use. If you wanted to name a company Western Shades and Blinds, check the name and variations such as: westernshadesandblinds, western-shades-and-blinds, westernshadesblinds and western-shades-blinds.
  6. Check if the name has been trademarked. Go to the U.S. Patent and Trademark office. Go to trademark search and then go to "Basic Word Mark Search (New User)"
  7. Create articles of incorporation. Online websites and local lawyers can help you with your articles of incorporation. There are excellent online services like LegalZoom who take the headache out of incorporating for a reasonable cost.
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Business Structure Pros Cons FAQs

Start a Business in Your State

Every state has its own rules for setting up a business. If you wish to find out more about what the state you live in requires to start a business, click on the right state below for more information.

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