Why should you incorporate your business?
1. Protect Yourself from Liability
This is the number one reason to incorporate your business. If you value your personal assets, you need to incorporate. Without incorporating, business creditors can use your personal residence and personal bank accounts to satisfy business debts or lawsuits against the business. The reason business creditors cannot reach your personal assets when incorporated is because an incorporated business and its owners are separate entities.
2. Gain Tax Advantages
Another popular reason to incorporate is to gain tax deductions for a number of operating costs which will dramatically reduce your company’s overall tax liability. Costs such as insurance, retirement plans, wages, marketing, advertising, travel and entertainment may be deductible.
3. Keep Your Business Alive
If you have an unincorporated business, its business existence and operation will usually be disrupted in the event of death or withdrawal of one of the owners. An incorporated business will have perpetual existence when those unfortunate events take place.
Although transferring of the incorporated business is a little more complicated than an unincorporated business all that is needed is for the shareholders to sell or gift their interest.
4. Enhance Your Company’s Image
When you see a company name with “Inc.” or “Co.” or “LLC” behind it, the company shows more credibility. Customers are more likely to trust the company and do business with it. A more important reason is for the business to be more attractive to banks and investors if and when the business seeks outside financing.
5. Improve Your Ability to Manage
In an incorporated business, the decision making authority is centralized, which usually means the shareholders have vested the authority in a Board of Directors. The control of the business can be assigned to the company’s officers by the Board of Directors. The power structure and decision-making authority in an unincorporated business may not be defined and could be modified by a co-owner or employee. The absence of structure will considerably affect the capacity of the business to operate.
For people who have not incorporated their business, I think it is mainly due to cost. Most people think that it will cost thousands of dollars to incorporate.
With the advantage of the internet, it is not as expensive as you think. You can incorporate for as little as a few hundred dollars. I myself have used this company to incorporate my business and it saved me thousands of dollars. MyCorporation.com
Please note, due to variations in state tax laws and tax laws in other countries, you should consult a tax professional before making the decision to incorporate.