There are several benefits of incorporating your business, including separating your business liability from your personal assets, your personal and business credit, and potential tax savings depending upon levels of profits.
Here are additional benefits of incorporating your business that most don’t consider but should to grow your business.
Marketing and Joint Venture Advantage
This is the big one that no accountant will ever take about. This is not a tax advantage but a marketing advantage for your business. Ask yourself, which sounds better: “It’s the CEO of ABC, Inc on Line 1 for you, Bob,” or “It’s the owner/operator (meaning a sole proprietor) on line 1 for you, Bob”?
As a new business owner attempting to get through a gatekeeper, every minor advantage helps! So many miss this door-opening opportunity, even though it could spell the difference between prospering and being out of the game in the first 90 days.
At NCP, we have our own policy regarding Joint Ventures (JV). If a sole proprietorship calls and wants to do a JV, that means one of three things:
• They have no profits in their business;
• They don’t believe they will succeed, so they didn’t spend the money to incorporate;
• They have a “Let’s try it out first to see if it works, then incorporate later.”
Our standard answer is, “Thanks for calling, but we’re unable to work with you right now.” Of course, they never hear the “real reason” they were rejected; nor will you, because now you know not to make this mistake in the first place.
Your ability to leverage opportunities is key to your growth. Your goal is to send a strong message to potential partners, vendors, affiliate source… that you are serious about what you are doing vs. “I am hoping things work out, and if they do, I will incorporate soon, but for now, I want to keep things simple and keep my costs down.” The latter does not convey confidence.
Tax Advantages – Deductible Employee Benefits
Incorporating usually provides tax-deductible benefits for you and your employees.
Even if you are the only shareholder and employee of your business, benefits such as health insurance, life insurance, travel, and entertainment expenses may be deductible. There have been several changes since the 2018 tax law changes to what is now deductible and what is not. Best of all, corporations usually provide an increased tax shelter for qualified pensions plans or retirement plans (e.g., 401K’s).
Easier Access to Capital Funding
It’s easy to raise capital for a corporation through the sale of stock. Investors are much harder to attract to sole proprietorships and partnerships because of personal liability. Investors are more likely to purchase shares in a corporation where there is a separation between personal and business assets. (Some banks, as well, prefer to lend money to corporations.) This is not as common at the small business level as it sounds because it can be complicated and require the proper attorneys to make sure you are not violating any security laws. Unfortunately, many small businesses seek investors and never consult with a securities attorney.
An Enduring Structure
A corporation is the most enduring legal business structure. Corporations may continue regardless of what happens to their individual directors, officers, managers, or shareholders.
If a sole proprietor or partner dies, the business may automatically end or become involved in various legal entanglements. Corporations can have unlimited life, extending beyond the illness or death of the owners.
Easier Transfer of Ownership
Ownership of a corporation may be transferred through the sale of stock without substantially disrupting operations or creating the need for complex legal documentation.
Corporations can offer anonymity to their owners. For example, if you want to open an independent small business and don’t want your involvement to be public knowledge, your best choice may be to incorporate. But if you begin as a sole proprietorship, it’s hard to hide the fact that you’re the owner. As a partnership, you’ll probably be required to register your name and your partners’ names with the county officials and state in which…
With a corporation’s centralized management, all decisions are made by the board of directors. Shareholders cannot unilaterally make binding agreements on behalf of the business simply because of their investment. With partnerships, each general partner may make binding agreements that may result in severe financial difficulty to you or the partnership.
There are many benefits of incorporating your business, beyond if it will save you on taxes. Building a real business and a brand requires a solid foundation, starting with an LLC or corporation built on a complete formation.
Leave a Comment: