Starting a new business is exciting, but launching and maintaining that business can be stressful. Ensuring that you have a proper plan in place can help you avoid future headaches. When developing your plan, it is important to decide how it is you will structure your business. Will it be a sole proprietorship, a partnership or will you incorporate? While incorporating may require additional effort, many entrepreneurs find that the potential benefits far outweighs the costs.
When deciding if incorporation is right for you, consider the following advantages:
Protect Personal Assets
For start-ups and other businesses, liability protection may be the most compelling reason to incorporate. Once incorporated, your business becomes a separate entity and, consequently, incorporating your business can protect you from personal liability for business debts and obligations. However, to maintain this protection, it is important that your corporation or LLC is set up properly and that you continue to follow all corporate formalities throughout the life of your business. For example, if a corporation is not properly set up and maintained, a business creditor may attempt and succeed at “piercing the corporate veil” and establishing personal liability of the incorporator.
Increase Your Business’ Credibility
Incorporation creates a perception of integrity in the minds of consumers and lenders. This air of professionalism makes it more likely that others will chose to work with you.
Increase Your Access to Capital
Due in part to its perceived credibility, corporations often have an easier time raising capital. Banks are often more willing to lend corporations money and a corporation’s ability to issue stock can make it easier for the business to launch and grow.
Ease of Transfers
Unlike a sole proprietorship, which does not exist apart from its owners, corporations can continue indefinitely. Shares of corporate stock may be easily transferred and as an incorporator, you can set up the corporation so that it may be easily passed on to your family.