You likely spend most of your time in survival mode when you start a business, just making it work. It can be hard to focus on some finer details that aren’t part of the day-to-day operations. Determining the business structure is one of those details that some entrepreneurs miss at first. But at some point, you may wonder if you should incorporate your small business.
At Angie Avard Turner Law, LLC, my passion is helping entrepreneurs protect what they create. Incorporating your company is a straightforward way to provide significant personal protection for you as the business owner. For help with contracts, business structure, copyrights, and more, reserve your time today.
What Does It Mean to Incorporate?
When you incorporate your company, you make the business a legal entity of its own in the eyes of your state government. This designation means that the company is separate from you as a person.
The word incorporate has the Latin word corpus at its root. Corpus means body. So, when you incorporate, you are giving your business a body, or a distinct presence.
There are legal and tax considerations when incorporating a company, but for most small businesses, this step makes sense.
There are three primary types of corporations, and they each offer similar legal buffers, separating you from your business:
Limited Liability Corporation (LLC) - single or multiple partners
Of these three options, forming an LLC is the most popular choice for small businesses. It is a relatively simple and affordable way to protect yourself. As your business revenue and assets grow, you may want to consider filing as an S Corp or C Corp.
It’s important to note that incorporating your small business is not the same as registering your business with your state. A registration simply tells the Secretary of State that your business exists. It doesn’t create a corporation.
Who Is Eligible To Incorporate?
Do you own a business? If you do, you can create a corporation.
A common misconception about incorporating is that you need to be a big company. That is certainly not the case. In fact, the smaller your business is, the greater the advantages can be.
When you incorporate your small business, you establish some key benchmarks necessary to grow a business. Even if you are a one-person show, conducting your business in your pajamas from your couch, incorporating is an option and can be a great idea.
Incorporating a business does not require you to have:
An established brand
Whether or not to incorporate often becomes a bigger stumbling block than it needs to be for small biz owners. You don’t have to be at some preconceived higher level to take this step for your business. I promise.
Why Should You Incorporate Your Small Business?
As an intellectual property attorney, my short answer to this question is “Protection.” Incorporation gives you a powerful legal shield that makes it worth it. Let’s dig into how that works and look at other benefits of incorporating your business. Here are five reasons to consider establishing a corporation.
1. Protect Your Personal Assets
When you start a company and do not incorporate, your default business entity is either a sole proprietorship (just you) or a general partnership (you plus at least one other person). There is nothing you do to set these up. They simply exist.
In these two situations, there is no legal separation between you and your business. If something goes wrong, and someone takes legal action against your business, they can also come after your personal assets. Incorporating also protects your assets from business creditors to some extent.
Incorporation creates a buffer that keeps most of your personal assets safe as you grow your company.
2. Get Access to Credit and Loans
Access to capital can open up significantly once you establish your company’s legal identity through incorporation. The business can apply for credit cards and loans to develop its credit. You also are likely eligible to apply for grants and other funding from investors once you incorporate your small business.
3. Grow Your Customer Base
Many companies prefer to do business with corporations. Seeing the “LLC” or “Inc.” in a business name can add a sense of credibility and legitimacy. When you incorporate, you likely will appeal to a broader audience so that you can grow your business further.
In particular, companies with a business-to-business model (B2B) greatly benefit from the perceived value of being a corporation. Incorporating also may make you eligible to go after government contracts for your business.
4. Tax Advantages
Many business owners reap significant tax benefits when they incorporate. Things such as start-up costs and employee benefits are often deductible once you establish an LLC or other corporate entity. Filing taxes as an S corporation also avoids the double taxation that comes with a C corporation.
As with any tax-related decisions, consult with a professional who has expertise in your niche. They can guide you to the best options for your situation.
5. Be In Position To Sell
If you hope to grow your company to a point where you can sell it, you need to incorporate it. A business entity can continue to exist regardless of who is the owner. Ownership can change without altering the corporate structure.
When Should You Incorporate?
As an attorney who works to help people protect their work, I say that the best time to incorporate is now. No matter where you are in your business journey, it’s a good idea to take this step.
At any time, legal or financial issues could arise that may impact your personal assets. The sooner you get this protection in place, the better.
Is It Time?
Incorporating your business isn’t as scary as it seems. With an attorney’s expertise, you can set up your corporation relatively quickly and easily.
If you are ready to take this critical step to protect what you’ve created, let’s talk. Schedule your time today, and let’s get you the protection you deserve.