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Posted February 13, 2015
| Updated May 23, 2022

Incorporate a Business: the Best Way to Protect Your Assets and Save Taxes

We’ve written before extensively about all the benefits of incorporating a business, so I thought I’d take a different approach. Let’s look at some scenarios where being incorporated would help you in your small business.

You Get Sued

While most business owners are horrified at the prospect of being sued, it can happen, so it’s important to protect your business against this occurring. If you operate as a sole proprietorship and the judge says that you now have to pay this angry customer or supplier $10,000 and you don’t have that money in your account, guess where it comes from? The court can legally take your car, house, or other assets to pay that debt if the business is running dry.

Incorporating, on the other hand, separates your personal assets from the business. Creditors can never touch your personal assets if you are sued as a corporation.

You Get a Big Tax Bill

If you operate as a C corporation, you can be taxed twice: once on the profits of your company, and then again as a shareholder receiving dividends from the company. Who wants a bigger than necessary chunk taken out of their bank account?

Forming an S corp, on the other hand, means you’ll only be taxed once, and you’ll reap the benefit of pass-through taxes. That means that you simply report your business’ profit and loss on your personal taxes, and don’t have to file separate tax documents for the company.

You Want to Get Investor Funding

Your startup needs a cash infusion asap. The problem is, you’re a sole proprietor, and none of the venture capitalists you’ve talked to will touch your business. They want to work with incorporated startups so that their own assets can’t be touched, should you be sued or go bankrupt.

The easy solution here is to incorporate! Once you do, you’ll open your business up to more funding opportunities.

You Want Your Kids to Take Over the Business

While you can turn your sole proprietorship over to a family member, it amounts to them having to create a new business name and structure entirely to do so. A corporation, on the other hand, will outlive you, and you can transfer ownership easily.

You Need Partners

Whether you need partners because you need investment, or you’re looking to bring shareholders with diverse experience into your company, you want to compensate them for their involvement in your company. The easiest way to do that is to incorporate so that you can allocate equity to each shareholder.

Now that you see specific scenarios where being incorporated is a benefit, why not incorporate a business with CorpNet? We’re here to answer your questions and get you the best business structure for your needs. Call us today!

<a href="https://www.corpnet.com/blog/author/nellieakalp/" target="_self">Nellie Akalp</a>

Nellie Akalp

Nellie Akalp is an entrepreneur, small business expert, speaker, and mother of four amazing kids. As CEO of CorpNet.com, she has helped more than half a million entrepreneurs launch their businesses. Akalp is nationally recognized as one of the most prominent experts on small business legal matters, contributing frequently to outlets like Entrepreneur, Forbes, Huffington Post, Mashable, and Fox Small Business. A passionate entrepreneur herself, Akalp is committed to helping others take the reigns and dive into small business ownership. Through her public speaking, media appearances, and frequent blogging, she has developed a strong following within the small business community and has been honored as a Small Business Influencer Champion three years in a row.

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