What kinds of businesses can benefit from incorporation?
Whether you run a small business with no employees, or a large sized business with multiple locations, choosing to incorporate maximizes your chances of success and helps you get the most out of your business. While setting up and operating as a sole proprietorship is simple, you'll miss out on the many important advantages that forming a corporation or LLC provides.
The most important benefit of incorporation is limited liability. Both corporations and LLCs allow you to separate and protect your personal assets from those of the business, meaning that you have limited liablitly for the debts and obligations of the business. Only money you directly invest in the business is subject to these obligations, not your home, vehicle, or other personal possessions.
Where should I incorporate my business?
It's important to consider all of your options when choosing where to form your business, and new business owners commonly seek the advice of an attorney or CPA to help them make the best financial choices. Most commonly, a business owner's best option is to form in their home state. While some states do offer certain advantages, such as the favorable tax laws of Nevada or Delaware, it's important to remember that no matter which state you choose, you will still need to file and pay taxes in each state where you conduct business. While this could be advantageous for some small businesses, it also means that forming your business in your home state is likely to simply your tax returns. It is important to weigh out these options with the help of a legal professional if you are unsure which is best for your busines.
When should I Incorporate?
Many small business owners may wonder when the best time to incorporate a business is. While incorporating too early may result in paying unnecessary filing fees, you would want to weigh that against the possible financial risks of operating a business without the protection of a legal entity. When you incorporate your business, you designate your business as a separate legal entity, responsible for its own debts and obligations. In a scenario where your business were to face a lawsuit before you incorporate, your home, vehicles, or other personal belongings could be used as collateral to repay the debts accrued by the business.