One of the decisions you must make when starting a new business is whether or not to keep your business as a sole proprietorship, partnership or create a corporation. Each has their benefits depending on your goals and aspirations as a business owner.
Incorporating your business essentially means that you are creating a standalone legal entity in the eyes of the law. However, to know whether or not you should incorporate your business, you should first ask yourself these questions.
- Do I want to protect my personal assets in case my business fails? If yes, then incorporating your business is a good choice. Creating a corporation protects your personal assets and prevents creditors from coming after you personally to fulfill the debt.
- Do I want to be able to easily transfer my business to someone else if necessary? If so, incorporate your business. Ownership in a corporation can be easily transferred to another entity. In fact, some states make this incredibly easy to do in order to increase economic activity in their states.
- Do I want to pay lower taxes? If yes, it’s another reason why you should incorporate your business. Corporations are taxed at a lower rate than individuals.
- Do I want to create a separate credit rating for my company? A corporation’s credit worthiness is developed independent of its owners. If you have bad credit and are worried about securing funding for your business, incorporating it is the way to go.
- Do I want my business to stay open in case of my death? If yes, incorporate. Corporations can carry on indefinitely. A corporation is not affected due to a death by one of its directors.
If, after going through these questions, you’ve decided that you should incorporate your business, there are many steps you need to take in order to make this happen. First of all, you’ll need to file your Articles of Incorporation, or Charter. This information lists the purpose of your business and where you will conduct business. Fees for registering this information vary, but normally run anywhere from $100-$1000.
Next, you’ll need to develop a corporate name. A legal corporate name generally consists of the following elements: Distinctive Element, Descriptive Element and Legal Element. For example, Smith’s Sewing, Inc. Smith’s is the distinctive element, with Sewing being the descriptive element (showing that the corporation does sewing) and the Inc. signifies that it’s a legal corporation.
You’ll also need to file bylaws with the state you are incorporated in. This document outlines certain details about your organization like when your annual shareholders meeting will be held, etc.
Incorporating your business is a wise choice for many business owners like yourself. It may be just the right choice for your particular situation, but with any legal business decision, its best is to find an attorney who specializes in corporate law that will help you understand all of the paperwork you will need in order to incorporate. Another wonderful resource in your local Small Business Administration office that knows exactly what is needed to incorporate your business quickly and effectively.
All in all, having your own business instills a sense of importance and self confidence within an individual where they can become the boss and call the shots alongwith a decent set of people to help him out and platforms like Pilotoasia.com to help find the right set of partners to invest into it.