Entrepreneurship is a dream for many people who start out doing things they love and getting paid for it. It’s easy to enjoy the fruits of your labor and overlook the need to take your business to the next level.
By incorporating your business, you give it legitimacy – that is an important aspect of becoming a business owner.
Before making a decision, you will need to understand the options available. Incorporation is a catch-all for different business structures. These include corporations, limited liability companies (LLCs), S- and C corporations, and non-profits.
Research each option and understand the tax rules. You will need to know the implications from a legal and tax liability standpoint. After choosing a type of business entity, you may realize it isn’t a good fit; don’t worry, you can change it anytime.
Continue reading for six reasons why you should become an incorporated business.
1. You Can Get a Business Bank Account
Operating small businesses that are not incorporated often leads to co-mingling business funds with personal funds. This is okay if you’re keeping good records. But it can be tricky at tax time if you can’t distinguish between personal and business expenses.
In most states, you can only open a business bank account if your business is incorporated. Building a business relationship with a bank can come in handy. If you need to take out a loan to cover emergency expenses or fund an expansion, you have already established a financial relationship.
An incorporated business with a bank account can sign up for online accounting programs like Quickbooks. This will allow your business to manage reports and prepare you for tax reporting.
It also eases the process and costs of accepting ACH and credit card payments.
2. Gain Access to Small Business Loans
It’s no secret that 30 percent of new businesses fail within two years of opening. One of the top reasons is a lack of access to cash. If you’re asking yourself why incorporate your business, being able to access a line of credit is a good reason.
Companies cannot qualify for small business loans if they don’t have their affairs in order. There is a list of documents you’ll need to provide. These include business banking records, profit and loss statements, and business plans.
It’s important to maintain a good personal credit score. Your credit rating plays a large part in the approval process.
Don’t let your business fail to thrive or keep its doors open because you’re not incorporated. Reap the benefits of your hard work.
3. There are Tax Benefits for an Incorporated Business
Businesses get taxed on their profits. You can reduce your tax liability by deducting your business expenses. These cover a wide range of items. Office supplies, rent, travel expenses, and utilities are all deductible expenses.
An incorporated business with employees can also deduct their salaries, insurance, and other benefits. You will also have the option of delaying your own income opposed to claiming all after expense revenue for yourself.
If you’re not comfortable doing your own taxes, we recommend hiring a Certified Public Accountant (CPA). This person will have the expertise to get you the best deductions for your business.
4. Incorporation Legitimizes Your Business
Operating a business that has been incorporated will lend legitimacy to your product or services. People tend to look at a business as being more credible if they have an Inc. or LLC attached to their name. Associations and trade groups for your industry may also require that you are an established business entity.
Having this distinction can also help build relationships with vendors and suppliers. Otherwise, you could have credit denied and be required to pay in full when ordering.
If you need to rent office space or open a storefront, you’ll most likely need to incorporate your business. Incorporation will also get you recognized by the local Chamber of Commerce, which brings its own added benefits.
5. You Can Protect Your Personal Assets If Sued
Don’t get caught up in a situation that can cost you everything. Being incorporated provides protection of personal assets if you are ever sued. Corporations and limited liability companies can separate their personal property from their business.
Without this protection, a business owner can lose everything, including their home, car, and other possessions.
This doesn’t mean that the business owner cannot be held liable for lawsuits filed against the company. You will still be liable for any of the company’s assets that can be seized to cover such debts.
It’s a good idea to have an attorney structure the business to ensure its owners protect their wealth. The time to do this is before you face litigation.
6. Protection for Your Brand
After you have become incorporated give serious consideration to protecting your brand. This comes in the form of filing for a Trademark.
Some business owners believe the incorporation is all they need to protect their name. The truth is it will prevent others within your state from duplicating your business name. However, it doesn’t stop someone outside of the state from infringing on your brand.
The process to register a Trademark is an expense some small businesses cannot afford. If you’re considering longevity and franchising, you want to make the investment to protect what you have built.
On the flip side, you don’t want to one day learn that you have infringed on someone else’s intellectual property. Rebranding could cost more than the fees associated with getting a Trademark.
Incorporation Is Essential
Getting your business affairs in order is very important. An incorporated business can reap many benefits, and as an owner, you owe it to yourself to have everything in order.
A part of becoming incorporated is that you’re required to have a registered agent to receive legal documents. For those operating a business out of their home, a registered agent is strongly recommended for asset protection.
Click here if you’re in need of a registered agent for your business!