Tuesday, November 27, 2007

To Incorporate or Not to Incorporate

If you are thinking about starting your own business, one of the first questions you will need to answer is whether or not to incorporate. An incorporated business can be a limited liability corporation, S corporation, or C corporation.

Incorporating can offer many benefits including:

Taxation: One of the most obvious possible benefits of incorporation are those related to taxes. Corporations are often taxed at a lower rate and have better taxable benefits. For example, when operating as a sole proprietor, you are required to pay self-employment tax on your profit, currently at 15.3%. As a corporation only the salary you pay yourself is subject to self employment tax. Live Help with your Taxes

Liability Protection: Sole proprietorships leave your personal assets like savings accounts, IRAs and even your home, wide open to seizure after a lawsuit or other financial crisis, whereas, incorporating provides a clear distinction between business and personal assets. Any debts or lawsuits are incurred by the company, not the owner personally. If your business might in any way have the potential for lawsuits you should consider incorporation. Incorporating will offer an added layer of protection. (Even with incorporation, you should still consider obtaining business liability insurance.)

Credibility: Having a corporate status provides a professional, stable, and reliable appearance to investors, customers and suppliers.

Raising Money: From traditional lending institutes to venture capitalists, obtaining the money needed to start or grow a viable business is always difficult but being incorporated can make that task just a little easier. A corporation can also sell shares of the company and raise money more easily than other business structure types.

Choosing your business structure is a very important and far reaching decision. Do your homework and choose wisely. Do not be deterred by the question of how, there are plenty of resources to help you file the proper paperwork if you decide incorporating is right for you and your business.

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