Business Financing Articles
Incorporate Your Business and Protect Yourself
If you incorporate your business, it offers you more protection from a legal and financial standpoint. If you incorporate your business you enter into what is known as limited liability. The easiest way to describe this is by contrasting it with sole proprietor status. Many small business owners begin as sole proprietors to test the waters of the business world first.
If you're a sole proprietor, your personal assets, that being your house, car, valuable belongings, etc., can be taken from you in order to pay the debts of your business, whether those debts be from vendors or a lawsuit filed against you. If you incorporate your business, however, you can't be held personally responsible for the debts of the corporation unless you've given a personal guarantee. Remember that if you incorporate your business you still retain the same rights as an individual, which means you can buy and own property for the business, sue or be sued, etc. The main difference is, such as with a lawsuit, if you default, the person you owe can only take what is in the business's name, not your name. So that means that if you incorporate your business, you can keep your house, your car, etc. You might lose everything that the business has worked for but at least you'll still have a roof over your head and a way to get around town.
On the other hand, if you incorporate your business it will incur more costs. For one, the incorporation itself has a fee, which can vary by state. If you incorporate your business you also have to do quarterly reporting to the IRS, which means your accountant will be working more often and that will be money out of your pocket.
Although it does cost money to incorporate your business it should be seriously considered as an expense well worth it since it offers you both legal and financial protection of your personal assets. Yes, unfortunate events might mean you'll lose your business but by incorporating that business you won't lose everything.