7 Reasons to Consider Incorporating Your Business

Starting a business is one of the most monumental things people will do in their lives. There will come a time when you realize there are huge risks with such a bold move. The following are some good reasons to incorporate your business to protect against some of those uncertainties:

1. Your personal assets are protected. Small business owners are responsible for the finances of the business – taking out loans, signing contracts, etc. If something goes wrong, such as your business falters or legal issues arise, your personal assets can be at risk once those of the business are exhausted. Incorporating your business creates a wall between the owner (shareholder) and the business, protecting your personal assets.

2. It creates an outline of rules for partners. If you went into business with someone else, there’s a chance that at some point you end up disagreeing on something. Incorporating your business provides rules for the shareholder relationship ensuring that there are no misunderstandings about ownership.

3. You can now issue stock. Fundraising for businesses is always difficult, but the opportunity to issue stock (while remaining a closely held business) is a viable way to raise capital.  Another benefit of the ability to issue stock is to reward employees with stock bonuses or options to provide performance incentives.   

4. An incorporated business is more attractive to investors. Corporations have a formal and regulated business structure that makes third-party investors more likely to develop an interest in your company, especially because liability is limited.

5. An incorporated business is more credible. The formalities of incorporating change the perception of your business, making it seem more credible. That makes it more attractive to consumers and clients and makes it easier to win contracts, especially from larger businesses.

6. Tax benefits. Corporate tax rates are often lower than individual tax rates, and you may find that the deductions and other tax benefits are better for your corporation than they would have been if your business had remained single-owned or a partnership.

7. Divesting is easier. If you decide you want out of the business, you only need to sell (or transfer) your shares.

There are some disadvantages to setting up a corporation, including costs at the outset, the need for annual meetings and state fees, but the comfort in knowing that the business itself is not your sole responsibility should make the move to incorporate more agreeable in the end.

Is incorporating right for you?

If you think becoming incorporated is right for your business, an experienced attorney can help you determine if the decision is right for you. For more information or to set up an appointment, contact APH Law today.