As a business owner, it is likely that at some point you have asked yourself “should I incorporate my business?” If your business is currently run as a sole proprietorship, there are many benefits you could gain from incorporating your business.
However, as with any major business decision, you will want to take all of the pros and cons into consideration before deciding whether or not to incorporate your business. To help you make this important business decision, here is a quick overview of the primary benefits incorporating your business could provide you with.
One of the primary advantages of incorporating your business is that doing so can help to protect you in the event that your business incurs debts by limiting your liability.
When you are a sole proprietor, you as the business owner assume all liability for the business, and your personal assets such as your house and car may be seized to pay for your business’s debts.However, after incorporating your business, you will be an individual shareholder whose liability is limited by the amount you are invested in the company.
Another major benefit of incorporating your business is that corporations and LLCs have a nearly unlimited lifespan. The problem sole proprietorships face is that should the business owner die, or decide to retire, the business often ends.
However, corporations can continue to easily exist even if the owner dies or the management changes. In fact, transferring control or ownership of a business is a much simpler process after incorporation. Thusly, when you incorporate your business, you can help to ensure that it lives on in perpetuity long after you are gone, or have stepped away from your business; the company you worked so hard to establish won’t die with you.
Corporations have another benefit over sole proprietorships in that they can attract more talented employees with stock options. Offering potential employees partial ownership of the company may be the deciding factor that causes a rising star in the field to choose your offer over offers from competitors.
Additionally, rewarding high-performing, longtime employees with stock options can be a great way to boost morale, encourage your workforce to work as hard as possible, and to keep employees dedicated to your business. With perks like stock options, employees will be less likely to want to move to another company.
While an incorporated business can incur debt the same way as a small proprietorship, incorporating your business has the added benefit of providing you with the ability to raise money to grow your business through equity financing.
Equity financing involves selling shares in your company to investors, which can prove to be advantageous as this capital does not have to be repaid, nor does it incur interest; however, you will be reducing your percentage of ownership in the corporation by doing this. However, many companies see it as a good alternative to incurring debt.
Many business owners find it advantageous to change their business from a sole proprietorship to a corporation or LLC. By incorporating, business owners have more protections from debt, they have access to more funding opportunities, and they can better ensure the future of their business after they are gone.
However, these are just a few of the reasons to consider incorporating a business. If you own a business, there are many factors that will need to be taken into account before you decide to incorporate. Contact us to learn more about the pros and cons of incorporating a business, as well as for help in deciding whether incorporation is right for your business.