Why Incorporate Your Business?

Are you thinking about starting a business? Or perhaps you’re already in business and realize that you should separate your personal finances and potential liability from that of your business. If this sounds like you, consider taking the steps necessary to incorporate your business.

There are a few different ways of organizing your new corporation, and we’ll get to those in a minute, but first let’s review a few of the reasons why you should incorporate.

The website Investopedia.com has a great paraphrased definition of a corporation: “A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes.”

In a corporation, you are not limited by the life of either the founder or the person that is currently running the business—a corporation has an unlimited lifespan. Also, the financial interest you have in a corporation can be easily sold, transferred, or assigned if you choose to do so. The structure of a corporation makes it easy for the entity to raise capital by attracting investors. The investors’ interest can also be easily traded or transferred. In addition to that, the corporate structure ensures limited liability for the shareholders.

Advantages

There are several advantages of incorporating your business:

  • Unlimited lifespan
  • Easy transfer of financial interests through ownership shares
  • Ability to raise capital through sale of securities
  • Corporations have a body of legal precedent to guide the owners
  • Owners are protected from personal liability from company debts
  • Tax benefits: In certain circumstances there are tax benefits from incorporating, but there are structural organizing particulars you must consider. In a “C” type corporation, you may be subject to “double taxation” on any profits. Some may want to consider organizing and operating under the subchapter “S” structure under the Internal Revenue Code, which allows profits/losses to flow through to the individual shareholder(s).

Disadvantages

Corporations do require additional work on the part of the owner or manager during the life of the organization. You should consult with a legal partner before setting up your corporation, as there are many regulatory rules that must be followed.

  • Increased paperwork
  • Additional tax returns
  • No personal tax credits; every dollar earned may be taxed
  • Increased costs from organizing to operation
  • Diminished control; shareholders have a say on major decisions

Getting Started

There are many things to consider before you incorporate your business. You should ask questions of your legal partner, accountant or tax consultant, and perhaps even other successful business owners in your industry.

The name of your business is important as well; you need to find out whether your desired company name is already registered in the state you are going to incorporate in. You should also make sure that you won’t conflict with any trademarks that may exist at the federal level that could impact the future of your business.

Another thing to think about is where to incorporate. If you decide to incorporate outside of your home state, for instance, you may have to meet certain requirements, like having a bank account, employees, or maybe even a physical presence in the intended state of incorporation. A good reference for what your particular state may require can be found here. Click on the state you are interested in and you will be directed to a page with state specifics.

For example, in Texas you are directed to the Texas Secretary of State Corporations section, where you can find links to search for name availability and important tips like: “Selecting a Business Structure,” “Start-Up Information,” and much, much more.

A trusted San Antonio business lawyer is crucial to have when you are considering incorporating your business. Call Jennifer Espronceda today to schedule a free initial phone consultation at 210-308-6600, or email Jennifer@EsproncedaLaw.com.

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