corporation

Benefits of Incorporating Your Business

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Incorporating your business can provide numerous benefits that can help you achieve long-term success and protect your personal assets.

First and foremost, incorporating your business separates your personal and business liabilities. By forming a legal entity, such as a corporation or a limited liability company (LLC), you create a distinct legal entity that is separate from yourself. This means that your personal assets, such as your home or savings, are protected in case of any business-related lawsuits or debts.

Incorporating your business also enhances your credibility and professionalism. When you incorporate, you gain a professional image that can attract more customers, clients, and investors. It demonstrates that you are serious about your business and are committed to its long-term growth and success.

Furthermore, incorporating your business can provide tax advantages. Depending on your jurisdiction, you may be eligible for various tax deductions and benefits that are not available to sole proprietors or partnerships. This can help you save money and reinvest it back into your business.

Lastly, incorporating your business can facilitate easier access to funding. Many lenders and investors prefer to work with incorporated businesses as they offer more stability and legal protection. By incorporating, you may have better access to loans, lines of credit, and investment opportunities that can fuel your business growth.

If you are serious about taking your business to the next level and safeguarding your personal assets, it is highly recommended to consider the option of incorporation.

If you have any questions or would like further information, please feel free to reach out to our office.

Business Entity Overview

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When you start a business, you have thousands of decisions to make. One of the most important is how you will classify your business legally. 

And while you’ve probably heard the terms floating around — sole proprietorship, partnership, LLC, and corporation — it’s crucial to understand the differences so you can choose the structure that works best for you. It will impact how much you pay in taxes, the liability you face, and your ability to raise money.

Here are a few thoughts I often share with my clients as they make decisions about their new business venture: 

1. Sole proprietorship. A sole proprietorship is the most common form of business organization. These businesses’ owners report business income and expenses on their personal tax returns and pay tax on any profit.

ADVANTAGE: It’s easy to form and gives the owner complete control of the business.

DISADVANTAGE: The owner is personally liable for all financial obligations.

2. Partnerships. A partnership involves two or more people who agree to share in the profits or losses of a business. 

ADVANTAGE: Partners do not bear the tax burden of profits or the benefit of losses — they are simply reported on partners’ individual income tax returns.

DISADVANTAGE: Each partner is personally liable for the financial obligations of the business.

3. Corporations. A corporation is a legal entity created to conduct business. The corporation becomes separate from those who founded it. The corporation can be taxed, held legally liable for its actions, and make a profit.

ADVANTAGE: Corporate status allows owners to avoid personal liability.

DISADVANTAGE: The cost to form the corporation and the extensive record-keeping keeps many new business owners from pursuing this option. Setting up an S Corp or C Corp can sidestep some of the liability by allowing income or losses to be reported on individual tax returns (similar to a partnership).

4. Limited liability corporation (LLC). An LLC is a hybrid form of partnership that’s growing in popularity. 

ADVANTAGE: Profits and losses can be passed to owners without taxation of the business itself, while owners are shielded from personal liability. 

DISADVANTAGE: Compared to a sole proprietorship or partnership, an LLC is a little more expensive to operate. Additionally, owners must keep personal business separate from the business of the company. 

Now that you know a little bit about the different structures, here are a few questions to ask yourself when choosing one: 

  • To what extent do you need to be protected from legal liability? Consider whether your business lends itself to potential liability and, if so, if you can personally afford that risk.
  • Based on your personal tax situation and business goals, where are your opportunities to minimize taxation? Keep in mind there are more tax options available to corporations than to proprietorships or partnerships.
  • What funds do you have for setting up (and running) your chosen business structure? The tax advantages of a corporation may be nice, but they may not be enough to offset the costs of conducting business that way.

Note that no two business situations are the same–I’m happy to help guide you based on your personal circumstances.

If you’d like help deciding how to move forward with your business, contact our office today for a consultation. Go to ravosalawoffices.com for more information, or call us at 508-755-3202 or 617-720-1101.