Incorporating is essential to the success of any business. The process of incorporating entails the preparation of certain documents, including a document referred to as the “Articles of Incorporation,” and filing the documents with the Secretary of State. (For an LLC, the main document used to incorporate is referred to as the “Articles of Organization.”)
So why should YOU incorporate?
1. Shield Yourself from Liability
The most important reason to incorporate your business is to protect yourself from business liabilities. If you are operating an unincorporated business, its creditors may be able to reach your personal assets. Assets such as your personal residence and personal bank account can be used to pay business debts or to satisfy a lawsuit against your business. If you incorporate, business creditors cannot reach your personal assets, as an incorporated business and its owners are separate entities.
2. Keep Your Business Alive
Perpetual existence is an advantageous aspect of an incorporated business. Perpetual existence means that the life and continuation of the business will not be affected by the withdrawal or death of one of the owners. An unincorporated business’s existence, as well as its operation, is generally disrupted by the withdrawal or death of one of the owners. Subtract this risk from your business by incorporating.
Similarly, the ownership interest in an unincorporated business may be very difficult to transfer. If the business is incorporated the shareholders can easily transfer their interest by sale or gift.
3. Gain Tax Advantages
If you incorporate your business, there are tax deductions for a wide variety of operating costs which will substantially cut back your company’s overall tax liability. These deductions may include the cost
of materials/production, employee wages, the cost of insurance, the cost of retirement plans, as well as business travel and entertainment expenses.
4. Enhance Your Company’s Image
Another essential reason to incorporate your business is that it adds credibility to its operation. The perception of a business is improved by its incorporation and use of “Inc.,” “Co.,” or “LLC” following the name of the business. Customers are more likely to trust and deal with a business that has this positive image. More importantly, the business will be more attractive to banks and investors if and when
the business seeks outside financing.
5. Improve Your Ability to Manage
The decision-making authority of an incorporated business is centralized, which usually means that the shareholders have vested the authority in a Board of Directors. The Board of Directors can delegate
this authority to the company’s officers. In an unincorporated business, the power structure and decision-making authority may not be defined and may be subject to manipulation by a co-owner or employee. This lack of structure will substantially affect the ability of the business to operate. Subtract this risk from your business by incorporating and thereby centralizing its management structure.
About the Author:
Direct Incorporation CEO Shannon Stahlin was recognized this month by DBusiness as one of “30 in their Thirties: Business Leaders of Tomorrow … Today.” He founded Direct Incorporation in 2003 with his father and a small group of former attorneys with the simple purpose of making it easier to start a business. The business has since expanded to include everything from online incorporation and trademark offerings to website, email and logo development services. In 2010 Direct Incorporation was recognized by INC Magazine as one of the fastest-growing companies in America. Learn more at http://www.directincorporation.com/