If you’re thinking of opening a small business, or just have, you may be weighing the pros and cons of incorporating.
But what exactly are the benefits to taking this measure? Because opinions can vary and information can be incomplete, below we’ve broken down the 4 key reasons you should take a long hard look at incorporating your business.
Protect Your Personal Assets
There is no doubt that starting your own business is exciting. But with that excitement comes the reality that accidents happen and (unfortunately) businesses sometimes fail. But by incorporating your business as a Limited Liability Company (LLC), or a C or S Corporation, you are protecting your personal assets from business debts and/or lawsuits. That means if a customer trips or slips in your store and takes you to court to collect damages, you are not personally liable. It also means that if your business falls on hard times, your personal property is off limits to collection agencies. It might not be the most pleasant topic to address, but as a responsible business person you never want to be caught unprepared.
The second benefit of incorporating, and one of the most crucial to leverage, are the many tax benefits that are available to corporations. When you go from being a sole proprietor or partnership to a business structure such as an LLC, there are numerous deductions at your disposal that are not available to individuals. Everything from tax deductions on health insurance and life insurance to savings on self-employment taxes. Just remember that tax laws are complex and it’s best to consult a CPA before claiming any deductions.
Easier to Raise Capital
It might not be the most obvious benefit, but it’s true that by incorporating, you’re making it easier for your business to raise capital. This mostly means that if you plan on borrowing money or applying for a loan, it adds a sense of legitimacy to your business. By incorporating, it also means you are able to open up a bank account and start building a line of credit, which for a small business owner is a necessity.
Easier to Sell
We know that you business is your lifeblood, but let’s be honest, there might be a day when you decide it’s time to sell. As hard as that might be to envision now, it’s always best to be prepared for the future. With this in mind, did you know that incorporating your business makes it easier to sell? That’s right! Sole proprietorships and partnerships are traditionally less attractive to buyers, so incorporating will give you a leg up on any competing businesses a buyer might also be looking at.
While the reasons to incorporate vary, the benefits of incorporating will last the lifespan of your business. Therefore it’s important to get it right the first time. If the process seems daunting, that’s perfectly ok. There are variety of online resources that can help guide you through the process. So go ahead, find the business structure that is right for you.