The number one reason to incorporate is to protect your personal assets. However, incorporating your business may not be necessary. Once you put your name on a business card you have become a sole proprietor. If you put your name and a partner’s name on a business care you have created a partnership. You do not need permission to start a business. However, you may want to consider legal details such a vendor’s license or trade marking your business name. On the other hand you may feel incorporation is safer and would benefit your company in the long run. You can become incorporated easily online through a company like LegalZoom or through a lawyer in your town. The cost can be anywhere from $150-$300. Once you form a corporation you have just entered in a new taxpayer into the system. This will require filing taxes separately and abiding by state laws for incorporation status. The benefit is that your personal assets are safe as you are no long personally liable for your company’s debt or liability.
Considerations before taking the step to incorporate:
Have you field tested your business? If you are still researching the market for your business you may want to hold off on incorporation.
Is this a side-line business or is this something you plan to grow over the years to become a consistent business?
Will you want, require or have a partner or employees?
Will the tax benefits and cost of incorporation make sense for your business?
Advantages of incorporating your business:
The business is a separate entity therefore you are not personally responsible for liabilities or debts. You can rest easy knowing that whatever happens you will not lose your home or car.
Since the business is a separate entity it continues to exist if there is a change in management or the original owner or partner passes away.
Your business name will be protected. However, you need to check your laws as different states often have different rules.
Your business has an added sense of legitimacy. An unincorporated business structure can cease to exist by simply throwing away a box of business cards. Many businesses, vendors and consumers feel more comfortable working with an incorporated company.
You have tax flexibility. An LLC, for instance, can file on personal income tax forms or chose to file as a company on a separate form. An S Corp prevents double taxation since an individual will be taxed on income and taxed again by filing their company as a separate entity.