To incorporate or not to incorporate, that is the question. If you’re an independent contractor or run your own small business, you’ve probably wondered if it’s the right decision for you. You don’t necessarily have to incorporate – understanding the pros and cons of incorporating your business in MA may help determine the best choice for you. Do the benefits outweigh the downsides?
Pros of Incorporating
In addition to enhanced credibility and brand protection there are a several more benefits to incorporating your business in MA.
- Tax Breaks
Depending on whether you choose an LLC, S corp, or C corp, you may enjoy some tax advantages – including savings on self-employment and life insurance taxes, as well as the ability write off health insurance premiums.
- Personal Asset Protection
Once you opt for limited liability protection, your debts become part of the business, thus securing your personal assets. Creditors can no longer go after your home, car, etc. to recoup business debts.
- Perpetual Existence
In addition to enhancing your credibility, incorporating your business also establishes it’s perpetual existence. Whether you choose to sell your interest or in the event of your death, the corporation lives on.
- Attract Investors
The ability to issue stock is a major selling point for both raising capital and attracting others to invest in your business. Another perk is that banks prefer to handle loans with incorporated businesses.
- Stock Options and Retirement Funds
It makes it much easier to offer stock options and retirement funds to employees as an incorporated business.
Cons of Incorporating
While there may be many benefits to incorporating your business in MA, there can be some disadvantages as well – and not just the time and cost involved in the incorporation process.
- Ongoing Fees
You are required by law to file articles of incorporation – including all processing fees. In many states, ongoing fees to maintain the corporation are required.
- Corporate Formalities
Corporations must follow established legal procedures – including annual record keeping, regular meeting of directors, and maintaining the company’s ongoing financial independence.
- Tax Liability
Taxes can be a tricky business. While there were several tax benefits noted above in the pros, there are also be negatives as well – specifically “double taxation.” Double taxation occurs when both the corporation is taxed for profits earned and any stockholder who earned profits is also taxed. This applies more to larger corporations than smaller ones who offer tax-deductible salaries to employees, but should still be a consideration. One way to avoid the double taxation issue is to elect for an “S” corporation tax status.
Still uncertain about incorporating your business in MA?
Given the unique nature of your business and your personal situation, your best bet is to consult with an attorney to discuss the pros and cons of incorporating your business in MA. Your attorney will help you decide what type of legal structure you should establish – if you choose to incorporate. For a free consultation, contact the Martino Law Group.