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Five Benefits of Incorporating or Forming an LLC

As tax season has come and gone, many business owners may feel that they’ve paid too much in taxes this year. That may be true, especially if the business is not incorporated. Make no mistake; no business that is too small to incorporate.

There are many benefits to incorporating your business, regardless of its size.

What are some of the advantages of forming a corporation or Limited Liability Company (LLC)?

1.) Personal asset protection – One of the biggest benefits that owners find in incorporating their business is the ability to separate and protect their personal assets. In the event that a lawsuit or claim against a business entity arises, owners of an appropriately structured business will have limited liability for their business debts and obligations.

2.) Credibility – As many business owners will attest, consumers, vendors and partners may prefer to do business with an incorporated and/or trusted company. Adding “Inc.” or “LLC” after your business name can add instant authority to businesses.

3.) Name protection – In most states, competing businesses are prohibited from registering the exact corporate or LLC name in the same state. The benefits of this range from protecting a company’s reputation from being tarnished with the confusion of another business to solidifying a business’s identity; after all, a catchy name could be the roots of a business’s success. This helps businesses in terms of name-recognition, marketing, and branding efforts.

4.) Perpetual existence – What happens to the business when ownership or management changes? Well, that depends on the structure of the business. Corporations and LLCs continue to exist even if ownership or management changes, meanwhile sole proprietorships and partnerships just end if an owner dies or leaves the business. Forming a corporation ensures that a business’s legacy can continue, as well as continue to provide employment and services for clients should any changes in ownership occur.

5.) Tax flexibility and incorporation tax benefits – Many entrepreneurs decide to incorporate their small business because of the variety of tax advantages and benefits that sole proprietorships and partnerships cannot provide. Profits and losses typically pass through an LLC and get reported on the personal income tax returns of owners. Further, an LLC can also elect to be taxed as a corporation. Similarly, a corporation can avoid double taxation of corporate profits and dividends by electing Subchapter S tax status.

This chart below may help in the decision making process when deciding which business structure is right for your business.

Screen Shot 2014-04-23 at 9.43.55 PM

My advice is to consult an attorney or a tax consultant to help determine how to get the most out of your business.

The Company Corporation does not provide legal or tax advice.

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About E.J. Dealy

E.J. Dealy is CEO of The Company Corporation, the Small Business Unit at Corporation Service Company® (CSC®), which incorporates tens of thousands of new businesses annually and provides ongoing compliance services to 200,000 companies located throughout the U.S. Dealy previously served as CSC's vice president for corporate development. Before joining CSC, Dealy was president and…