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Blog Posted in avatar   E.J. Dealy's Blog

Reasons Why an Entrepreneur Should Incorporate

By E.J. Dealy
Posted Feb 1, 2013 in Business
Many entrepreneurs launch companies as sole proprietorships in which they and their businesses are basically the same. However, changing the structure of a small business can offer many advantages. Most notable is that a corporation (C-corp) or a Limited Liability Company (LLC) protects the business owner's personal assets if claims or debts are made against the business.
The advantages of incorporating include:
• Protection of personal assets. C-corps and LLCs allow entrepreneurs to separate and shield their personal assets. Thus, they can protect themselves against legal judgments against their firms..
• Credibility. Having "Inc." or "LLC" after the company name adds credibility. Customers, vendors, and business partners frequently prefer to do firm that is incorporated. .
• Perpetual existence. Corporations and LLCs can continue to exist even if the founder/owner dies or decides to retire or sell the company. Sole proprietorships and partnerships simply end when an owner leaves.
• Tax flexibility. An LLC is taxed at the same rate as a sole proprietorship. Though profit and loss typically are reported on personal income tax returns of LLC owners, the company could choose to be taxed as a corporation. When a business owner sets up a C-corp, he or she is taxed on both the individual and corporate levels. However, a business can avoid double taxation of corporate profits by electing Subchapter S tax status.
• Tax Deductions. LLCs and C-Crops are allowed to may deduct business expenses, such as salaries, before allocating income to the business owners.
Should My Business Incorporate or Form an LLC?
Consider the following factors on the chart below:
Deciding Which Business Structure is Right for You
Selecting the right business format of a company helps entrepreneurs maximize their chances success. To achieve the optimum financial success from your small business, discuss the proper structure with an accountant or an attorney.

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