Why Incorporation is Necessary: 5 Reasons to Incorporate Your Business

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/

14 thoughts on “Why Incorporation is Necessary: 5 Reasons to Incorporate Your Business”

Thanks for sharing this post with us. I just got my LLC this past January. I have been operating my business on my name for over a decade and that was definitely a mistake. I am just lucky that nothing happened that would affect my business. You definitely have clearly laid out the benefits and its always good to have this kind of information.

I absolutely love the quality and value in this blog.

Hi,
Incorporation is an important part of any company/organization. You may never ignore it because it helps you out in building your company`s name to great level. It`s a term that defines your business and make you alive in business field otherwise you may never stay for a long time if you ignore it. The information provided in this post is really true and we have to focus on it that how to make our company position strong in market by keeping in view the concept of incorporation.

Hello,
I am agree with suppliers directory to a real extant. People who do not understand the importance of incorporation, always get in trouble to stable their business. It is a case study that made on the bases of research from different businesses CEO`s and managers to define that what is the actual meaning and benefit of incorporation? All of them are strongly agree with this that incorporation keeps you in touch with business and new market trends. it is really helpful for any business promotion and growth.

Keep up the good work. Best of luck.

Stands back from the keyboard in amazement! Thanks!

Great article. thanks for sharing such a great idea.

You’ve got it in one. Couldn’t have put it better.

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14 thoughts on “Why Incorporation is Necessary: 5 Reasons to Incorporate Your Business”