Four Key Advantages of Incorporation

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By default, most business owners select to structure their business as either a sole proprietorship (solo owner) or general partnership (multiple owners). These entities are the simplest to form, but do have one major limitation: there’s no distinction between the business and the business owner.

If by some spur of the moment reason your sole proprietorship or general partnership is sued for violating a written or oral contract, your business AND your personal assets will be at stake. So the question is, “How can I protect myself from these spur of the moment lawsuits once I start my business?”  The answer is simple: Form a corporation or an LLC.

Corporations and LLC have unique advantages to protect your personal assets.  

Key Advantage #1:

Personal Asset Protection – Forming a corporation or an LLC allows you to separate and protect your personal assets from frivolous and devastating lawsuits, that can more often than not, destroy your business. Incorporating your business shields owners and other officers in the company from liability. If your business goes through litigation, bankruptcy, or other legal action, your personal assets won’t be affected because of your decision to incorporate. Essentially, your personal property and financial holdings cannot be touched or taken, even if your business is hit by a frivolous lawsuit. If you’re ever involved in a business lawsuit, incorporating takes the burden off your shoulders, giving you peace of mind knowing your personal assets cannot be targeted.  

Key Advantage #2:

Name Protection – Having “Inc.” or “LLC” after your business gives you the uniqueness and legitimacy that ensures you stand out from a marketplace full of competitors. Through incorporation, you gain a shield of protection in your state. This professional identity that you have established through incorporation gives you the ability to protect yourself from other businesses trying to infringe on your brand or use your business name.

Key Advantage #3:

Credibility – Incorporating your business signifies credibility and structure of your business entity to vendors, investors and partners. Additionally, ensuring that your business is a credible entity creates a better relationship between you and your clientele.  It shows that your business is serious about operating professionally and providing an honest experience. Also, don’t forget … having an LLC or corporation gives your entity the ability to sell stock and raise capital through shares. This is a must for potential investors.

Key Advantage #4:

Tax Breaks and Tax Advantages – Having a corporation or LLC as a business entity offers distinct tax advantages. You can enjoy tax breaks on items such as self-employment taxes, life insurance, and health insurance premiums. These tax advantages can help you manage costs and decrease your overall tax liability.

Forming a corporation or an LLC might not be the first thing on your mind as you start your business. However, incorporating your business legitimizes your business affairs and even separates your business assets from your personal assets. It also protects you from lawsuits that can harm your business. As you incorporate and have questions along the way, be sure to seek out professional advice, so that you start your business on the right track.