I bet most of you will not disagree with me if I tell that the following are few of the most common questions that haunt the owners of a growing small business.
1) What is the real deal behind incorporating? 2) Who should go for it? Or should a small business consider incorporation? 3) If yes when?
Let us analyze and find out the answers and see why almost every resource on the net about incorporation is advising small business owners to incorporate their business. Let's see what the catch is!
Let us compile a list of advantages first and once we do that it's likely that the above mentioned questions might look really simple.
Advantages:
1) Once you incorporate your business the law gives it a separate entity from you. 2) Corporations are taxed lower than sole proprietorships and partnerships 3) With a corporation, it will be easy to raise funds by going public and selling stock. 4) Freedom from personal liability 5) Credibility or a high feel good factor for the customers.
Now let us go back to our questions and try to answer them one by one. First one being "What's the real deal behind incorporating" All the listed advantages clearly answer this question.
Let's go to the next one "Who should think about incorporation?"
The first advantage answers this question, Once you incorporate your business, the law gives it a separate entity from you, this means for those who are in for the long haul it might be good to consider incorporation as this will make their business "Lasting to eternity" type of one. By this i mean your corporation or your business will continue to grow or exist even if you and the original incorporators are gone from this world, or in a sense your corporation will still be around for a long time because the law gives it a separate entity from you.
Now the next question "Should a small business consider incorporation? If yes when?"
You guessed it right, advantages 2 and 3 answers this one. Here is how.
A common problem every growing small business face is fund raising. The limited options that they have are loans or selling a part of their business, which requires a lot of paperwork adding to the complexity. If you incorporate raising funds becomes much easier for you because a corporation can do that by going public and selling stock. All a corporation needs to do is to issue or sign over a stock certificate to capture additional funds when the need arises.
Hence the answer is a small business should think about incorporation when they see a possibility of expanding their business. This comes with an added advantage of reduced taxation which will be good help for you when you step into the so called "corporate world".
Now let's analyze what's with the other advantages "Freedom from personal liability" and "Credibility" and what do they mean.
"Freedom from liability" protects your business from personal problems and liabilities, If your business is not incorporated in case someone wants to sue you he or she will be able to put claims on both your personal assets and also on your business assets since they are not listed as a separate entities. When a corporation is sued, only assets which can be claimed are the declared assets of the corporation and not the private assets of the owner.
This adds a certain limit of security to your business. However it won't work if you just try to use your corporation as a dummy to take advantage of this fact. There are certain rules and regulations regarding the functioning of a corporation which must be followed to ensure the security offered by incorporating your business.
Next, it's a fact that consumers feel safer dealing with "XYZ Inc" rather than a simple "John Smith". The "Inc", right after the business name lends it credibility. This thing called credibility comes from your business being a separate entity.
It is also a well known fact that it is really easy to transfer ownership of a corporation. You just need to sell out your shares a when you are tired being the boss of thousands of people for too long.
So the conclusion would be, if you are after longevity, reduced personal risk, credibility and liquidity then you should think about incorporating your business.
=== George Monaco is a renowned expert in different forms on incorporation and LLC formation. He offers a comprehensive guide on business entities which you'll find at http://www.incorporationmaster.com/
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