Many small business owners start off as sole proprietorships because it’s the most straight-forward and least expensive way to start. As the business grows, many then consider incorporating into either an LLC, S-corp or full corporation. The deciding factor is often among these 4 reasons to incorporate a small business.
1 – Personal Asset Protection
Incorporating a business allows that business to exist as its own entity. This provides separation between your personal assets/debts and that of the business. Although you may still have some personal liability as the owner of the business, it’s limited compared to operating as a sole proprietor.
2 – Independence
Another great reason to incorporate is for independence. The business will exist apart from you as an individual. This can be helpful should you wish to retire or sell the business in the future. It also allows the business to continue operating should you become deceased.
3 – Credibility
Having an “LLC” or “Inc.” at the end of your business name can provide some instant credibility. It sounds official and gives the impression of stability. Perhaps this comes from the fact that anyone can quickly establish a sole proprietor business, but it takes more time, money, and forethought to incorporate.
4 – Tax Flexibility
Lastly, there are some tax differences to consider. There may be ways to avoid being taxed at both the corporate and personal level for the same income. For instance, some corporate structures allow pass-thru income, so owners can report profits and losses on their personal tax returns rather than filing a business tax return. It is important to discuss tax implications before you select a specific business structure. Be sure to consider both your current situation and what may change as the business grows.
More Reasons to Incorporate a Small Business
These are just a few reasons to incorporate a small business. As you review your options, be sure to consult with a local business attorney. This will help you make an educated decision about the future of your business. Your attorney can also help you file the necessary paperwork to complete the transition while protecting your rights and limiting your potential liability. If you’re looking for a business attorney in the Melrose, MA area, contact us to schedule a consultation.