Becoming an entrepreneur is no easy feat. Deciding on the right legal structure for your business is a common challenge you might face.
So if you’re going to legitimize your business, which option should you choose? Sole proprietor, partnership, Limited Liability Company (LLC), or corporation? Here are 5 key benefits of incorporating your business and using it to boost your bottom line.
1. Personal Asset Protection
Unlike a sole proprietorship or partnership, a corporation is completely separate from its owners from a legal standpoint. This means that your personal liabilities and debts are separate from that of your business. This separation is key when protecting your own personal assets like your home, car, retirement account etc.
If in an extreme case, you’re unable to pay a business debt or someone sues your business, they won’t be able to seize your personal assets.
2. Tax Benefits
Certain tax benefits make corporations very appealing to entrepreneurs because self-employment taxes can be pretty brutal if you are operating as a sole proprietorship or even an LLC.
Generally, a corporation pays the standard corporate tax rate on its taxable income and the owners pay income tax on their personal earnings from the business. Yes, this is double taxation but it can be beneficial given the fact that only the owner(s)’ salary is subject to self-employment taxes instead of all your earnings.
If you can run a successful business and legally save on taxes, why wouldn’t you want to keep more of your hard earned money in your pocket?
3. Automatic Protection For Your Business Name
When you incorporate your business, the business name automatically becomes protected in the state you registered the company in. This means that no other company or LLC in the state that sells similar products or services can use the same name as your business.
If you want to protect your business name throughout the U.S. you must file a trademark, but incorporating your business is a good first start especially if you do a lot of local, in-state work.
4. Opportunity to Get Shareholders
One of the cool perks of having a corporation is that you can sell stock ownership of your company to raise money. This could be a nice alternative to taking out a loan to grow your business. With a C-corporation, you can have an unlimited number of shareholders
5. Instant Credibility
Finally, I’m going to be blunt and say that incorporating your business will most likely provide instant credibility which is what you want as you expand your operation.
When you take the time out to formally register your business, it can make finding prospective clients, customers, and vendors easier. Even if you’re great at what you do, it’s difficult to trust people these days and there are tons of scams out there that others want to avoid (rightfully so). You want to give the best first impression when you meet people and network.
Having a formal and organized business tells people that you care about your company and are serious about working with them in some capacity.
Incorporating your business is a big decision so it will require some thought, planning, and a discussion with your attorney and accountant if you think it’s necessary. If you do choose to move forward, you’ll need to make sure your business meets all the legal and financial requirements. Then, you can start filling out the registration paperwork.
This page is for informational purposes only. Chime does not provide financial, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before engaging in any transaction.