You may feel like a small business owner and see yourself as an individual entrepreneur, but incorporating your business gives you a lot more control over your future. It’s a long process to incorporate, but a corporate structure has many benefits that will pay off in the long run. If you’ve just started your business as an unincorporated entity and don’t know what to do next, read on to learn why you should start a corporation.
Separating Your Business From Yourself
If you have employees, a corporation is ideal for keeping business and personal finances separate. Business income is not taxed at the individual level: It flows to the corporation and is taxed there. This keeps your personal income lower and could result in a lower tax rate as well. If your business goes south, you don’t want to lose everything you own. A corporation protects your personal assets in case your business incurs debt or has a lawsuit against it.
If you eventually want a good exit strategy, you can transfer ownership of your corporation to another person without having to sell your business. All you have to do is issue shares of stock to the new owners and transfer the stock ownership to them. You can also sell your corporation to a third party by having them purchase shares of your corporation’s stock. Transferring stock is much easier than selling an entire company or business. You can transfer the ownership of your business from one person to another without going through a complicated process.
Limiting Your Liability Exposure
If you’re an entrepreneur, you know the risk of having too much liability. You might get sued or find yourself facing an expensive court case. And if you don’t have the money to pay for it, the judge could garnish your wages or freeze your bank account. These types of problems could drastically affect your ability to make a living. A corporation shields your personal assets from being seized for payment. It also limits your liability exposure to others, such as your business partners, vendors, and customers.
Before you incorporate your business, you should understand the process and know what to expect. You can complete the process online in some states, while you may have to complete the process at the local government office in other states. It’s a lot of work, but the benefits of a corporate structure are worth it.