Should You Incorporate Your Small Business?
A Home Business Article Contributed by Alyssa Yerga
Is Incorporating a Small Business Possible?
When people hear the word corporation, they rarely think of small business. Instead, images of skyscrapers in big cities, boardrooms full of successful professionals, and business men and women frantically rushing to their next important meeting come to mind. But that isn't the case.
A corporation is simply an entity, separate from the individual(s) who created it, that has been approved by the state. Every state is different, so thoroughly research your state's requirements.
In some ways a corporation has the same rights and responsibilities as a person. The corporation can buy or sell stock, and in cases of lawsuits, the corporation is solely responsible. That means you, even as the creator and owner of the corporation cannot personally be sued unless you've given a personal guarantee.
There are probably hundreds of books out about incorporating small businesses, dealing with all the who, what, where, when, why and how questions you will undoubtedly have.
Pros and Cons of Incorporating Your Small Business
As with any choice in life, there are pros and cons to incorporating your small business:
Pros:
o A corporation will keep your business life distanced from your home life. In the event that something happens to your small business, you won't have to worry about losing your house, savings, or assets.
o Corporations are taxed at lower rates and have better tax benefits like claiming deductions for health and life insurance of its stockholders.
o Corporations have more prestige than sole proprietorship in the business world
o A corporation will carry on even if you can't or don't want to be part of it.
o Corporations are easier to sell.
Cons:
o It's more expensive to start a corporation since there are filing fees. Don't forget to factor in the cost of seeking counsel from professionals.
o If a corporation has losses, share holders cannot claim those losses as tax deductible.
o You and the corporation will be taxed for the same money once your small business becomes profitable.
This is just a tiny list of pros and cons, the ones most people consider. There are several other factors that you will have to research in order to make your decision. Remember, what one person considers an advantage or disadvantage may not have the same impact on you.
Is Incorporating a Small Business a Good Idea?
The idea of turning your small business into a corporation is overwhelming. Though it's something to consider, it's not something you have to do immediately. You can change the structure of your business as the need arises. So if you start off as a sole proprietorship you can still incorporate your small business one day. Small mom and pop businesses, freelancers, or small businesses run out of the home can all get the benefits of being corporations.
It's just a matter of filling out paper work and meeting the criteria of corporations. Be sure to meet with professionals to help you make the decision that is best for your small business.
