Starting your own business has become the new employment trend. According to the U.S. Census, approximately 514,332 new businesses were started in 2014. But, before you hang your shingle and open a business, you need to consider whether you want to utilize an entity (like a corporation or limited liability company). Likewise, the same analysis applies to an existing business.
Incorporating your business is the act of forming a separate legal entity. There are several different types of legal entities to choose from; however, the corporation and the limited liability company (LLC) are the most common. It’s important to consult with your attorney when selecting a type of entity. The benefits of utilizing a legal entity for your new or existing business are vast, but the top five reasons are as follows:
Personal Asset Protection. The chief reason to incorporate your business is to protect your personal assets. If you are operating as a sole proprietor and a successful lawsuit is brought against you, your personal assets could be at risk. In a worst case scenario, you could lose your house, car, and any other personal belongings. But, if your company is incorporated, and is properly managed, you’ll have additional protections to ensure that your personal assets are separated from your business assets and debts. It’s comparable to putting a wall between your business activities and your personal property.
Enhanced Credibility. Another major benefit of incorporating your business is heightened credibility. The distinction of adding “Inc” or “LLC” after your business name informs the public that you take your business seriously. Potential consumers, vendors and partners may prefer to do business with an incorporated company and may overlook those who are not.
Brand Protection. In Delaware, other businesses may not form an entity with the exact name as an existing entity in the State. From a branding standpoint, this not only helps protect your company’s reputation from being diminished by or confused with another company bearing a similar name, but strengthens your business in terms of brand identity and marketing efforts.
Perpetual Existence. Incorporated entities continue to exist throughout ownership changes within your business. Sole proprietorships and partnerships simply end if an owner dies or leaves the business. Utilizing an entity ensures that your company’s legacy can be preserved.
- Tax Flexibility. There are several tax advantages and benefits of incorporating a small business. While profit and loss typically “pass-through” a LLC and get reported on the personal income tax returns of owners, an LLC can also elect to be taxed as a corporation. Likewise, a corporation can avoid double taxation of corporate profits and dividends by electing Subchapter S tax status. You should talk with your accountant and legal team to determine the best tax option for you and your business.
For ease, this article refers to “incorporating” which is typically utilized when referencing a corporation (because a LLC is “formed” and not incorporated).
If you have any questions or concerns, please feel free to contact Dominic J. Balascio or Erica M. Crile, Esq. Of Parkway Law LLC at (302) 449-0400. Parkway Law has offices located in Wilmington, Middletown, Dover and Rehoboth