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Why Should I Incorporate?
The Benefits of Incorporating Your Business
There are several advantages to incorporating your business, regardless of its size.
Benefits of forming a corporation or Limited Liability Company (LLC) include:
- Personal asset protection. Forming either a corporation or an LLC is similar to a partnership, minus the need for excessive paperwork and fees. It allows the business owner to separate and protect their personal assets in case of a lawsuit or claims against a business entity. In an effectively managed and structured company, owners should have limited liability for outstanding business debts and obligations. This remains as one of the leading benefits to incorporating.
- Tax flexibility and incorporation tax benefits. There are several tax advantages and benefits of incorporating a small business. While profit and loss typically "pass-through" an LLC and get reported on the personal income tax returns of owners, an LLC can also elect to be taxed as a corporation. Likewise, a corporation can avoid double taxation of corporate profits and dividends by electing Subchapter S tax status.
- Enhanced credibility. A close second to personal asset protection, a major benefit of incorporating your business is the stamp of approval adding an "Inc." or "LLC" after your business name gives. This distinction affords your business with the instant credibility and authority associated with owning an incorporated company. Potential consumers, vendors and partners may prefer to do business with an incorporated company and will look overlook those who are not.
- Brand protection. In most states, other businesses may not file your exact corporate or LLC name in the same state. From a branding standpoint, this not only helps protect your company's reputation from being diminished by or confused with another company bearing a similar sounding name, but strengthens your businesses in terms of brand identity and marketing efforts.
- Perpetual existence. Corporations and LLCs continue to exist throughout ownership or management changes within your business. Sole proprietorships and partnerships simply end if an owner dies or leaves the business. Forming a corporation ensures that your company's legacy can be preserved, as well as continue to provide employment and services for clients should any changes in ownership take place.
- Deductible expenses. Corporations and LLCs may deduct normal business expenses, including salaries, before they allocate income to owners. This means that the money you put towards growing your business can be deducted from your business income in determining your actual taxable income.
The decision to incorporate is an important step in the life of a business. Carefully consider your options, weigh the advantages and disadvantages of incorporating a small business, and further explore some of the added benefits of incorporation.
What Is Incorporation?
The definition of incorporation is defined as the act of creating or organizing a new corporation under the laws of a particular state or jurisdiction. Learn more about the basics of incorporating or other common business and incorporation definitions.
Should My Business Incorporate or Form an LLC?
Corporations and LLCs are both separate legal entities (business structures) that enjoy certain protections under the law and significant benefits. The majority of people form a legal business structure to protect their personal assets.
The benefits to incorporating or forming a Limited Liability Company (LLC) allow you to manage your business without worrying about losing your home, car, or personal savings because of a business liability.
Form a corporation or LLC today to protect your personal property and save on taxes. If you are looking for background to help make your decision, try our Business Startup Wizard to see what other business owners in your industry and state have done. Our helpful tools can better help inform you and your decision as to whether or not incorporating now is the right choice for your business.
Decide Which Business Structure is Right for You
View the differences between corporations and LLCs in our Business Comparison Chart. Or, read more about all types of business structures to decide which is right for you and if it is in your business's best interest to incorporate at present.
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