So you’re finally ready to do it. The “It” you’ve been dreaming of for years, while you built up your courage (and your savings account!). You’re ready to break free from the chains of working for someone else and start your own small business. You’ve probably got a lot of information spinning around in your head about practical matters, like what size space to rent, what equipment you’re planning to buy, or where you plan to advertise. Put all that aside for a moment, because there’s a more important decision to consider, preferably before you take any other step. You need to take a look at whether you should incorporate, and the best time to seek advice about incorporating your small business is at the beginning.

The most notable advantage of incorporating your business is that incorporating protects you from “personal liability.” In the event of problems, property like your house, your personal car, your personal savings account, or anything else not owned by the corporation, cannot be taken by any creditor of the corporation. If you are running your business without any formal corporation to shield you, nearly all of your property may be taken to satisfy your business debts, whether or not those assets have anything to do with the activity of your small business. This personal asset protection is the reason you should consider incorporating before you ever sign your first lease, take out your first business loan, or create any other relationship with a business creditor.

Maybe you’ve already been operating your business for a while, thinking that incorporation wasn’t so very important. There is a common misconception that incorporation is not necessary until the business has been operating for a certain amount of time or until the business grows to a certain size, and consequently, many small businesses do start out as Sole Proprietorships (an unincorporated business owned by one person) or Partnerships (an unincorporated business owned by more than one person, with or without a written partnership agreement). The truth is that by operating an unincorporated business, you’re taking a chance, one that could deprive you of your home, your car, and any other major personal asset that you own. Business creditors who make agreements with you before you incorporate are not limited to collecting from corporate assets if problems arise. If you’re already operating, you should seek advice about incorporation as soon as possible, and definitely before you enter into a major contract with someone.

Incorporating also has other advantages. Because you register your corporation’s name with the state, no one else in the state can use your unique business name to start another corporation. In addition, some people feel that incorporating adds a certain amount of legitimacy or credibility to your business. Banks, vendors, and others might be more inclined to do business with a corporation than with an individual. Corporations also present the advantage of perpetual existence. Once registered with the state, a corporation “lives” forever, even if you die; its protection from personal liability carries on to protect those who inherit ownership of it, and those with whom you’ve made contracts remain obligated to carry out their obligations to the corporation.

Finally, there are potential tax advantages to incorporating. Years ago, with a traditional corporation, a small business owner would face possible income tax disadvantages, among other problems, but over time, a variety of tax treatments and business forms have developed to negate those problems. Subchapter S Corporations (“S Corps”) are corporations running small businesses that are allowed to elect more favorable tax treatment in taxation areas that used to be problematic, while retaining traditional corporate tax treatment that is advantageous. S Corps are a product of tax laws intended to stimulate small business activity. On the other hand, Limited Liability Companies (LLCs) are an alternative business form, different from the traditional corporation, and created by state laws. Because state law says so, LLCs retain all the advantages of the traditional corporation, such as protection from personal liability, but they receive favorable tax treatment different from the corporation.

Some of the disadvantages associated with the traditional corporation have to do with certain strict formalities that must be observed. For example, a corporation must have certain officers, issue stock, have stockholders, conduct routine business meetings, and make certain reports at least annually to the state. A corporation must pay registration fees to the state. With the right advice, these formalities are really not so difficult to handle. Also, as mentioned before, a traditional corporation can produce income tax disadvantages if the wrong choices are made as to tax treatments or business forms. The best way to avoid most of the disadvantages of incorporating is to consult with a professional, like a business attorney, who can guide you through the sometimes confusing process of incorporation and give you advice on dealing with the formalities involved.

Incorporating your small business has its advantages and disadvantages, but the pros far outweigh the cons. If you are about to embark on small business ownership, take the time first to consult with an attorney about your options. If you are already operating your small business, it’s never too late to decide to incorporate. An attorney can help you choose the business form that is right for you, and also assist you with preparing the documentation necessary to turn your business into a company and help your lifelong dream to flourish.

As a small business owner, questions like “Should I hire employees or independent contractors?” and “Do I need business insurance now or can I wait?” plague your thoughts nearly every day. Among these questions is the ever-present and all-too-often overlooked decision about whether or not incorporation is necessary. The excuses for delaying incorporation are myriad and growing, but still cannot outweigh the advantages and special protections afforded those who “take this necessary step”.  Listed below are 6 common excuses:

“We’re growing without incorporation.” The first two things customers and potential investors look for in a company prior to paying for services/products or investing in a business are credibility and stability. And the first indicator which says “We’re Doing Great” and “You Can Trust Us to Take Excellent Care of Your Money” is an “Inc.” or “LLC” or similar legal business designation behind your name. “Going the Extra Mile” will also pay off when you need a loan from a bank.

“I run my business out of my home.” Keep in mind if you are incorporated, your small business may qualify for certain tax credits, especially if: (a) your business is run out of your home; (b) you leased your vehicle or drove it primarily for business purposes and (c) you kept excellent financial records of everything purchased for your business and your gross profit.

“We’re moving along just fine…and our profits and capital are decent.” Especially in volatile economic times, “moving along” may not be the way to keep your business afloat. Incorporation allows your business to grow capital quicker and more safely by selling shares of stocks and/or securities.

“Our business doesn’t have any assets to protect.” As a small business owner, you may think, “We don’t have enough business assets to protect and validate the extra expense of incorporation.” Now think of your home, your savings and personal assets. Are those worth protecting? Incorporation can insulate and protect small business owners from business debts and lawsuits. By incorporating, the corporation will be responsible for the debts, keeping your family and your livelihood at a safe distance. Remember, though, this protection can be overridden by personal guarantees.
“I can’t afford the up front expense.” It is true that incorporating may cause some initial financial hardship for businesses and sole proprietorships. However, the alternative to not incorporating or setting up a limited liability company) can be drastically more expensive and costly.

“I can’t afford to pay the fees every year.” While incorporation does have a yearly tax and/or registered agent fee, these fees are a minimal investment compared to protecting your business and personal assets. In many states, the yearly annual renewal fees for corporation or limited liability company g are less than $100.

“It’s too difficult and takes far too much time.” Although there is initial paperwork associated with forming a corporation or limited liability company, most states have made the process much easier by offering online applications with “auto-fill” and/or simple instructions, thereby making the process of far more simpler than it was a few years ago.

In the end, by incorporating, you not only provide your business with the credibility and stability to attract customers, investors and employees, but you also provide the necessary protections for your business and personal assets that will help your small business flourish and grow.