10 Reasons Why You Should Incorporate or Get an LLC
If you’re looking to start your own business, you’ll need to choose whether you want to incorporate or get an LLC (Limited Liability Company). There are many advantages and disadvantages to each one, but this article will cover the main reasons why you might want to go one way or the other. If it’s your first time starting a business, this article will help make your decision easier on how to start a business and how to get started.
To protect your future
There are many reasons to incorporate or form an LLC for your business. Doing so can protect your personal assets in the event that your business is sued. It can also help you raise money from investors and get better rates on loans. Incorporating can also make it easier to sell your business later on. Here are 10 more reasons to consider incorporating or forming an LLC -Flexibility: One of the main benefits of incorporation is flexibility. As a corporation, you have more control over how profits will be distributed among shareholders, what percentage of company shares each shareholder owns, who will be responsible for certain duties (the board of directors), and other major decisions that affect your company's growth and development.
-Sole proprietorship: A sole proprietorship gives no legal protection if something goes wrong with the business. If there is a lawsuit, all of the owner's personal property and possessions could be at risk. With incorporation, even if the company becomes insolvent, only its assets would be at risk. If you own 100% of the company as a sole proprietor then you would not receive any tax benefits or deductions because your business expenses would simply go back into your pocketbook. However, as an incorporated entity owners can take advantage of some great tax breaks by way of dividends, payroll deductions and others which ultimately decrease their taxable income.
To make it easier to raise capital
1. When you incorporate or form an LLC, you create a legal entity that is separate from yourself. This gives you limited liability protection, which means that your personal assets are protected in the event that your business is sued.
2. Incorporating can make it easier to get funding from investors, because they will have confidence that their investment is protected.
3. An LLC can help you attract top talent, because it shows that you are serious about your business and are committed to its success.
4. Incorporating can give you a professional image and help you build credibility with customers and suppliers.
5. Forming an LLC can help you manage your taxes more efficiently, because you can deduct business expenses on your personal tax return. 6. Incorporating allows you to raise capital by selling shares of ownership in your company to investors, whereas forming an LLC does not offer this option. 7. An incorporated company may be eligible for certain benefits such as small-business grants and federal loans (although eligibility varies depending on the type of incorporation). 8. An incorporated company may be able to invest in real estate for its operations without having to worry about income-tax ramifications as much as if it were formed as an LLC 9. Shareholders of corporations may be entitled to shareholding privileges like board membership or dividend payments 10. Corporations pay less taxes than when operating under most state laws; many states impose higher fees on those who operate under their laws than those who operate through incorporation. Corporations also have greater access to venture capital funds, which enable them to grow faster.
Because of taxes
One of the main reasons people choose to incorporate or form an LLC is because of the tax benefits. When you form a corporation or LLC, you can choose how your business will be taxed. For example, you can be taxed as a sole proprietor, partnership, S corporation, or C corporation. The tax rate you pay will depend on which category you choose and how much income your business generates. If you have any questions about what would work best for your business, it’s best to consult with a professional accountant.
It’s also important to note that if you have employees then forming an LLC may not be right for you. With an incorporated company, businesses are treated like individuals in terms of taxes, meaning that they are subject to all the same taxes that normal people are including payroll taxes (social security and Medicare), sales taxes (on goods sold), property taxes (on property) etc., so if you employ other people then incorporating may not be the best choice for your company.
Business Credit
One of the main reasons to incorporate or form an LLC is to separate and protect your personal assets from your business debts and liabilities. This is called limited liability. If your business is sued, the court can only go after your business assets, not your personal ones. That means your car, house, and savings are all safe. However, if you’re self-employed without a company structure in place, you’re personally liable for any debt that your business incurs. Your personal assets could be at risk as well. As an example, say someone sues your company because they spilled coffee on themselves while visiting one of your shops. The person wants $100K to cover medical bills, lost wages, and pain and suffering. The judge agrees with them so he orders you to pay $100K out of pocket. You don't have the money! So now you're facing bankruptcy because you didn't set up protection for yourself with limited liability through incorporation or forming an LLC.