Thinking About Incorporating Your Small Business?

Incorporating your business can offer many advantages that may not be available to sole proprietorships and partnerships. These advantages include personal asset protection, increased credibility with customers and suppliers, and potential tax benefits. In addition, incorporating can also help you attract investors and obtain business financing.

It is important to do your homework before taking the plunge. By understanding the process and knowing what to expect, you can ensure that incorporating your business is the right decision for you.

Do I need to incorporate my small business?

There is no easy answer when it comes to incorporating your small business. Ultimately, the decision will come down to a number of factors, including the size and scope of your business, your industry, and your personal goals. That said, incorporating can provide significant advantages that may not be available to sole proprietorships and partnerships. If you’re considering incorporating your small business, it’s important to do your homework and understand the process.

When incorporating your small business, you will need to decide which type of entity to form. The most common types of business entities are Corporations and Limited Liability Companies (LLCs). Corporations are stock corporations that offer liability protection to their shareholders. Corporations have very formal management structures which include Shareholders, Board of Directors, and Officers.  

S-Corp vs C-Corp

Corporations can be taxed as an “S” Corp” or a “C” Corp.  Corporations are automatically taxed as an “C” Corp and must elect to be taxed as an “S” Corp.   When taxed as a “C” Corp, the profits are subject to double taxation, meaning that the corporation itself is taxed on its profits and then the shareholders are taxed on their dividends.  When taxed as an “S” Corporation, the profits pass through the company and are taxed through the individual shareholders.  

“S” Corporations are able to deduct certain business expenses on their corporate income tax return. In addition, incorporating your business can help you qualify for certain tax breaks, such as the Small Business Health Care Tax Credit. However, it is important to speak with a tax professional to determine if incorporating your business is right for you.

Protect Your Assets

One of the primary advantages of incorporating your business is asset protection. If you are a sole proprietor or partner in a business, your personal assets are at risk in the event that your business is sued or faces financial difficulties. Incorporating your business can help shield your personal assets from business liabilities.  Incorporating your small business can offer tax advantages that are not available to sole proprietorships and partnerships.

Factors to Think About Before Incorporating Your Business

There are a number of factors to consider before incorporating a business. These factors include the size and scope of your business, your industry, and your personal goals. In addition, you will need to decide which type of entity to form and whether or not you want to offer stock options to employees. Incorporating your business is a big decision, so it is important to do your homework and understand the process before taking the plunge.

Book a Quick Question Legal Session to see if incorporating your business is right for you.