Benefits of Incorporating a Business

If you are a small business owner you might be wondering if incorporating a business is right for you.  When you incorporate a business it becomes its own legal entity.  This type of business structure has protections and benefits of incorporating a business.  One of the biggest benefits of incorporating a business is personal asset protection.  When you incorporate you are able to run your business without worrying about your personal assets or finances coming under attack because of a business liability.

For instance, if you owned a business but it was registered as a sole proprietorship and your company was to go bankrupt, the courts could seize your assets to pay for the debts of your business.  Incorporating a business separates the business from your personal assets.  The corporation becomes its own legal entity and you are no longer personally liable for the debts or actions of the corporation. 

The asset protection works both ways when incorporating a business.  If you were to be personally sued, the business assets would be protected from that lawsuit as it is its own entity and just as you are not responsible for the business the business is not personally responsible for your actions.   

There are exceptions to the personal asset protection.  If you use business accounts to pay for personal expenses and visa-versa the courts may rule that you are operating the business as a sole proprietorship and not a corporation and you will end up being held personally liable for the debts of the business. 

When starting a small business it is important to build your company image by incorporating a business.  One of the best ways to do that is with your company name.  Your company name is your brand name.  In most states incorporating a business comes with the guarantee that no one else can use that name to incorporate.  This is important as you grow your business and people come to recognize your company name. 

Along with building your brand, adding the “Inc.” to your company name offers credibility and professionalism.  Consumers are much more likely to do business with a company that has been incorporated. 

Incorporating a business provides certain tax benefits.  Double taxation can be avoided by electing Subchapter S tax status or incorporating a business as an S Corporation.  Corporations came also deduct normal business expenses before income is allocated. 

If incorporating a business isn’t the best option for you, there are several other entities to consider.