You’ve worked hard at building your business from the ground up, and you’ve turned it into a force to be reckoned with. You think it’s time to take things to the next level, so you decide to incorporate. Exciting times, huh?
But which legal form is right for your business?
And should you even incorporate at all?
Read on to find out.
Should You Incorporate?
When you’ve been doing business for a while, incorporating may seem like the logical next step.
But incorporation isn’t just a milestone to check off your list, it’ll also change the way you run your business and increase your business expenses. It makes sense to take a critical look at your business and carefully consider whether incorporation actually makes sense for you.
There are many advantages to incorporating. The most obvious is enhanced credibility for your brand. Incorporation also provides less glamorous, albeit more practical benefits, such as tax advantages and personal asset protection. The trade-off is enhanced scrutiny and the need to comply with federal and state legislation.
Corporation or LLC?
Both corporations and LLCs are separate legal entities, which enjoy certain advantages and legal protections. When you incorporate your business, it becomes a legal person in its own right. It can sue and be sued in its own name, and its assets and liabilities are completely separate from yours.
However, corporations and LLCs enjoy different benefits and protections under the law.
Corporations have significant tax advantages. It’s possible, for instance, to deduct a corporation’s business losses from your personal tax return, including startup costs. A corporation can also provide considerable savings on Social Security and Medicare taxes. That said, corporations must have a set management structure, and unless your business is a certain size, this may not be feasible.
LLCs offer the same major benefits as corporations, including safeguarding your personal assets, but don’t have the same extensive tax advantages. The flipside is that the management structure is more flexible. This makes an LLC a better choice if you own a small business. Depending on your state, there may be a wide range of differences in fees for the LLC and the corporation.
Are you thinking of incorporating? Reach out to Bosserman Law at (662) 890-9558 for a consultation.