Starting a new business is often an exciting venture, but also involves many important decisions. One of the crucial decisions you'll make concerning your new business is whether or not to incorporate. Incorporating a small business has its advantages, of course, but you should carefully weigh the requirements of incorporation to make sure it's the right path for you.
If you're not sure about incorporation at the start, you can even start out as a sole proprietorship and incorporate later on as your business grows. Let's explore some advantages of incorporation and how they affect your business.
Probably the most advantageous feature of incorporation is limited liability for your company. This means that your personal assets such as your home, car, and other valuables cannot be seized if someone sues your corporation. A corporation has individual rights, meaning it can sue or be sued, incur liabilities, own property, etc. As an individual shareholder in your corporation, you personally will only have to assume liability for the amount you have invested in the company.
Easier to Raise Money
When you incorporate, your business has more opportunities to raise the capital needed to grow. It's easier to raise money through shareholders, and incorporating also means the business will be able to borrow and incur debt just like a sole proprietorship. Your corporation can also raise capital using equity.
Note: A drawback to incorporating and allowing shareholders to invest is you will lose a percentage of your ownership in the company.
Incorporating your business also may give a potential tax deferral. You'll be able to defer tax payments until a later date, and possibly enjoy a lower tax percentage rate if you happen to be in a lower tax bracket at that time. You can also defer taxes in hopes that the tax rates will fall by a certain time. When incorporating a small business, the business may qualify for a small business tax deduction.
A corporation offers some income advantages as well. Your income can be dispersed to you at a time determined by you. This allows you to possibly pay less tax (as mentioned above). You can also split income or dividends with other shareholders, even if your own family members are shareholders. This allows you to distribute income to those in your family who are in lower tax brackets from those that are in a higher bracket.
Other Benefits of Incorporation
Corporations can live on even when shareholders die or decide to leave the company. This means a corporation basically has an unlimited life span. Another advantage of being incorporated is this may help you attract more business. Being incorporated may cause potential customers to see your company as more stable than companies that are not incorporated. Some larger companies will only do business with an incorporated company because of liability issues. Incorporating also gives your business name a more professional tone.
If you're not sure about incorporation, another option to consider is LLC formation. When you form an LLC (limited liability company), you will incur some similar benefits of an incorporated business but without so many formalities. There are no ownership restrictions for LLCs, so anyone can own interest in the company. Owners of an LLC are called members instead of shareholders.
Whichever option you choose, consider online incorporation or forming an LLC online. This makes the process quicker and easier as well as more affordable. Online incorporation makes it simple to take your small business to the next level!
Chris Robertson is an author of Majon International, one of the worlds MOST popular internet marketing companies on the web.
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