Why Should I Incorporate My Business?

Posted over 4 years ago. 1 helpful vote

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1

Limited Liability Protection

By incorporating your business you are creating a barrier between your personal assets and any liabilities of the business. Generally speaking, incorporation allows you to only risk the investment you have already put into the business. If a creditor requires more than the business has in assets, they cannot go past the business and go after your personal property/assets.

2

Centralized Management

Under Minnesota statute, the default rules state that the management of a corporation be conducted by a board of directors. In essence, this means that there is a central meeting place where management decisions regarding the company are made in an organized fashion.

3

Continuity of the Life of the Business/Transferability of Ownership

A corporation or LLC can continue its existence indefinitely due to the fact that an interest in a corporation/LLC is considered personal property and can be transferred independent of the business (subject to provisions in organizing documents).

4

Tax Benefits

Generally speaking, a business will receive the most tax benefits by incorporating into a LLC (limited liability company) or an S-corporation. This is so because the IRS allows these business formations to have the perk of limited liability AND pass-through taxation. Pass-through taxation simply means that the owners of the business report gains/losses on their personal income tax forms. In contrast, income of a C-corporation is taxed twice: once at the corporate level and once again when distributions are made to shareholders. Therefore, for many businesses, a LLC or S-corporate form give them the best of both worlds: pass-through taxation and limited liability.

5

Credibility

The fact that a business is incorporated, a fact that is made known to customers by the indicating LLC or Inc. following a business name, can greatly improve the credibility of that business in the eye of the consumer. The fact that a business is organized under law can create a greater sense of trust in the consumer. It can also indicate that the owners take their business seriously.

6

Summary

There are many perks to incorporating your business but, in order to truly understand the intricacies of how incorporating will effect your own business, you need to talk to a lawyer. Each business is different and a lawyer will be able to assist you in your business planning needs so that you can take full advantage of the benefits of incorporating.

Additional Resources

Bower Law Office

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