Scott Drake of the Legal Broadcast Network recently interviewed Founder and  CEO, Nellie Akalp about how small businesses can protect themselves legally.

Scott asked Nellie why small businesses should incorporate. Her answer? The number 1 reason to incorporate is for liability protection. Nellie goes on to say most small businesses think they’re too small to bother incorporating, but even if you’re selling cupcakes out of your home or a freelance social media consultant, incorporating can protect you. Other benefits include tax savings and having the ability to raise capital.

Other Business Structure Options

The most common structures that businesses use are:

  • Sole proprietorship: You do business under your personal name or a fictitious name (you’d need a Fictitious Business Name form). But your personal assets are exposed to liability.
  • LLC: Limited Liability Company. Best of both worlds: protection of your assets but minimum hoops to jump through. Perfect for businesses with foreign owners.
  • C Corporation: Not recommended for small business owners; better for companies that plan to issue stock or raise funds.
  • S Corporation: Ideal for small businesses. IRS requirements cover number of owners allowed and shareholder qualifications. It provides self-employment benefits and considers business owners employees.

Where to Incorporate

Nellie explained to Scott that incorporating where your business is physically located is best, especially if there are five or fewer shareholders.

She went on to explain that is a self-help legal filing service and one option for filing paperwork. Typically you don’t need a lawyer to file a business structure, she said. It’s better to save the money you’d spend on a lawyer for legal issues that might come up down the road.

Not sure which business structure suits your company’s needs? We’re happy to help. Check out our free Starting a Business Checklist or our Business Comparison Chart, then call us to file your LLC or corporation.