Why should you incorporate your business?
Steve talks to Elisabeth Dawson about incorporating your business on her “Ways to Love Your Money” show.
Limited Personal Liability
You can protect your personal assets from business-related lawsuits by incorporating your small business.
Sole proprietorship and partnerships are subject to unlimited personal liability from a judgment arising out of a business debt. Creditors of the business can hold the owners of the business personally liable for debt and can seize the owner’s or partner’s personal property such as a home, savings, or other personal assets. You can protect your personal assets from business-related lawsuits by incorporating your small business. This limited liability feature of a corporation is one of the most attractive reasons for incorporating your business. You should be aware, however, that simply incorporating your small business by itself is not enough to reduce your personal liability. You should consult with a San Diego business attorney or business advisor before undertaking any important legal or financial decision.
Personal Credit Score Protection
Incorporating your small business can protect against a personal lawsuit and protect your credit rating.
Did you know that a personal judgment against you can devastate your personal FICO credit score, even if you pay the judgment on time? Even if you have a judgment against you for only $1.00, your credit score could be negatively impacted for up to seven years. The reason is the credit bureaus consider someone with a judgment a credit risk because that person did not pay a debt that a court determined was owed. Incorporating your small business can protect against a personal lawsuit and protect your credit rating.
Corporations can attract investors more easily than sole proprietorships or partnerships.
The reason is the limited liability of an investor. An investor can contribute capital to the corporation in exchange for stock without worrying about being liable for the acts of the corporation. In contrast, investors are exposed to potential liability for their contributions to sole proprietorships or partnerships.
Tax Savings and Deductions
Incorporation may offer substantial tax advantages.
The tax advantages of incorporation depend on many factors, such as whether the corporation elects to be taxed under subchapter “S” or “C” of the Internal Revenue Code. Another factor is the relative tax rates paid by the corporation. Corporations also offer the advantage of allowing certain deductions such as health and life insurance, travel and entertainment deductions as well as providing an increased tax shelter for retirement plans. Consult with your San Diego business attorney or tax advisor to analyze your particular situation.
Corporations are generally much easier to sell and are usually more attractive to buyers than either a sole proprietorship or partnership.
The reason is a new buyer may not be personally liable for any wrongdoings on the part of the previous owners. If someone buys a sole proprietorship, for example, the new owner can be held personally liable for any mistakes or illegalities on the part of the prior owner…even if the new owner had NOTHING to do with the situation. This is usually NOT the case with a corporation. Also, ownership of the business may be transferred without disrupting operations through the sale of stock.
Incorporation enhances your business’s credibility and prestige in its dealings.
By incorporating, a business may continue regardless of what happens to its shareholders, officers or directors.
A corporation is considered a separate person. A corporation has the longest lasting legal business structure. If a sole proprietor or partner dies the business ends or it may become involved in various legal entanglements. Since a corporation is considered a separate person, it may continue regardless of what happens to its shareholders, officers, or directors.
A corporation can offer anonymity to its owners.
For example, if a business person wants to open an independent small business and does not want his/her identify to be public knowledge, the best choice is to incorporate. If the person opens as a sole proprietorship, the person will clearly be identified as the owner. Also, if the person is involved in a partnership, this usually becomes a matter of record.
Are you ready to incorporate?
Protecting businesses is our top priority here at the Elia Law Firm. And setting up corporations is just one way we do that.
Wondering if you should just use a “Do It Yourself” incorporation service? You can, but there are risks of going it alone. See Why…
- We have helped many clients successfully incorporate their businesses.
- We give you straightforward legal advice.
- We do it right the first time.