9 Ways You Can Benefit From Incorporating Your Business
75% of all business revenues in the U.S. come from small businesses. These account for half the national output and employ about 50% of the private sector workforce, which is rather impressive. However, for many reasons, 50% of small businesses don’t make it past their fifth year of operation.
The reasons for this can be attributed to cash flow problems, expanding too quickly, inadequate market research and effects of a bad economy. For an investor, a primary concern is what they’ll do to give their business the best chance for success and longevity. Can incorporating a business contribute to this? Very much so.
Find out what incorporating your business means and how it can benefit the long-term potential of your business.
What Does Incorporating a Business Mean?
Incorporation is the legal process of forming a corporate entity. The process legally declares an entity separate from its owners. Corporations can be created in almost any country in the world, and are identified by the use of the terms ‘Inc’ or ‘Limited’ in the business name.
Let’s take a look at these 9 ways you can benefit from incorporating your business.
1. Protect Your Personal Assets from Creditors and Lawsuits
Incorporating your business is an easy way to protect your personal assets. As a separate entity, a business is responsible for its own debts, meaning that the business’s creditors can only seek payment from the assets of the company and personal assets of officers and shareholders can’t be pursued. An owner of a corporation can conduct business without risking personal properties.
On the other hand, owners of partnerships or sole proprietorships face unlimited liability for both personal and business assets. If your business isn’t incorporated and you’re forced to file for bankruptcy, your personal assets could be consolidated to settle the business’s debt.
In addition to offering protection from creditors, incorporating a business can provide protection from lawsuits filed against your business as well. For example, if someone suffers an injury on your premises and takes you to court to collect damages, you’re personally liable. The person suing you can attempt to collect on a judgment against you by taking your home or other personal assets.
Incorporation separates your business from yourself and ensures that your personal property remains just that. If you lose a case, your personal assets and family are protected.
2. Enhance Business Credibility
Other businesses, suppliers and customers perceive corporations to be more stable than unincorporated businesses. In a way, having ‘Inc’ or ‘Corp’ following your business name suggests credibility, permanence and your commitment to seeing your business succeed and grow over time.
3. Tax Benefits and Money Savings
A significant benefit of incorporation is the massive tax deductions available. Some of the tax deductions that you could benefit from include business travel expenses, medical insurance, daily operating taxes and social security taxes.
In addition to these standard deductions, local and state taxing authorities may also advance further incentives if you’re incorporated.
4. Allows Anonymity
If you’re thinking about running a small business and want to keep your business involvement a private matter, incorporating your business can allow this too.
5. Easier Access to Capital
Because a corporation can issue shares, accessing capital becomes simple, and, in turn, this makes it significantly easier for your business to grow.
It doesn’t end there — an incorporated business is also more likely to acquire a bank loan. To become incorporated, the first step is to open a bank account and start building a line of credit. If you can show that your business can access and repay its loans, this helps to build your profile as a credible business.
6. Perpetual Existence
Corporations are structured in the most enduring way. A corporation can continue operating despite what happens with shareholders, officers and individual directors. By incorporating your business, you immunize it against legal entanglements that could come from other business structures. The business entity remains in perpetual existence as its own entity, which means it can remain operational and profitable regardless of the actions of the individuals surrounding it.
If incorporated, a business can plan for growth on a long term basis. It will be easy to sell, should the business owner(s) want to do so because investors understand that the business can continue to operate profitably.
7. Easier to Sell
While you might be starting a business with the intent to sell, it probably won’t become your reality until a few years down the line. It is, though, a good idea to plan for the eventuality, should you end up there.
Sole proprietorships and partnerships are less attractive to buyers than corporations. This means that by incorporating your business, you’re giving yourself an advantage over other businesses when it’s time to sell. Corporations are viewed as much more stable than sole proprietorships and partnerships, which is a quality buyers are looking for.
8. Easy to Transfer
Maybe you don’t want to sell your business, but you might reach a point where you want to transfer it to someone else. An incorporated business is much easier to transfer than a partnership or a sole proprietorship.
Keep in mind that in a sole proprietorship, your personal assets are linked to your business. In order to transfer a sole proprietorship, you’ll first have to identify and sever all ties between your business and your personal assets.
A corporation lacks this concern, making it easier to transfer it just as it is.
9. Brand Protection
Incorporating your company also protects your brand. Your brand goes far beyond your marketing phrase or logo. It goes as far to include the products, voice, look and feel of your business. In this sense, your business name, visuals cues (colors, logos, slogans) and your trademark (words, symbols, designs) are protected from being used by others.
Incorporate Your Business Today
Incorporating a business can bring about numerous benefits which allows you to focus on the growth of your business. At Corporate Direct, we understand your need to protect and advance your business, and we work to help it become incorporated, protect its assets and benefit from tax deductions.
Is this something your business could benefit from? Contact us and let’s discuss how we can help you.