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.
