Why Should I Incorporate My Business?

Many business owners wonder why they should bother incorporating their business. They believe that it is just a waste of money and time and/or their business has been running smoothly despite not being incorporated. What business owners need to know is that incorporating their business has many perks and is an investment in their business that could, among other things, protect them and their families down the road.

Here are some benefits of incorporating:

Limited Liability Protection

By incorporating your business you are creating a barrier between your personal assets and any liabilities of the business. Generally speaking, incorporation allows you to only risk the investment you have already put into the business. If a creditor requires more than the business has in assets, they cannot go past the business and go after your personal property/assets.

Centralized Management

Under Minnesota statute, the default rules state that the management of a corporation be conducted by a board of directors. In essence, this means that there is a central meeting place where management decisions regarding the company are made in an organized fashion.

Continuity of the Life of the Business/Transferability of Ownership

A corporation or LLC can continue its existence indefinitely due to the fact that an interest in a corporation/LLC is considered personal property and can be transferred independent of the business (subject to provisions in organizing documents).

Tax Benefits

Generally speaking, a business will receive the most tax benefits by incorporating into a LLC (limited liability company) or an S-corporation. This is so because the IRS allows these business formations to have the perk of limited liability AND pass-through taxation. Pass-through taxation simply means that the owners of the business report gains/losses on their personal income tax forms. In contrast, income of a C-corporation is taxed twice: once at the corporate level and once again when distributions are made to shareholders. Therefore, for many businesses, a LLC or S-corporate form give them the best of both worlds: pass-through taxation and limited liability.

Credibility

The fact that a business is incorporated, a fact that is made known to customers by the indicating LLC or Inc. following a business name, can greatly improve the credibility of that business in the eye of the consumer. The fact that a business is organized under law can create a greater sense of trust in the consumer. It can also indicate that the owners take their business seriously.

There are many perks to incorporating your business but, in order to truly understand the intricacies of how incorporating will effect your own business, you need to talk to a lawyer. Each business is different and a lawyer will be able to assist you in your business planning needs so that you can take full advantage of the benefits of incorporating.