Thinking about incorporating? It's a question most small business owners ask themselves at some point in their growth and development. So is it a good idea for you?
There are many advantages to incorporating your business. By establishing a separate legal entity, you will protect your personal financial assets, meaning your home and savings remain safe from creditors seeking payment (in the event things don't go as planned). The incorporated business will carry the risks, instead of you. That can be a huge relief, especially if you've been dealing with those financial pressures and worries for a while now.
There's also a potential bump in credibility; customers, suppliers, lenders and others in the community tend to respect a business more when it seems more "real" to them. Will those three letters-INC or LLC -after your business name help expand your reach and opportunities? It's a risk that many business owners are willing to take. If you're ready to take the plunge and incorporate, don't rush. Take your time and be careful making decisions. Check out this short list of things to tread carefully around.
- Don't assume that you know which corporate entity is right for you. From C corporations to S corporations to LLCs and partnerships, each offers potential benefits and pitfalls for your specific business. At this point it may be wise to talk to a lawyer, rather than a friend or colleague, to get valuable advice regarding the ramifications of once choice over another.
- Don't skip the formalities. Beyond the legal documents to file, there are also new bank accounts to set up, files to maintain, contracts that require official letterhead and authorized signatures. You'll have more records to keep in order, and handshake deals may not suffice anymore. In short, you'll have to behave like a corporation.
- Don't skip the paperwork up front. If you started the business with a friend, now's the time to put together a detailed, written agreement that covers anything that may come up with co-ownership-before you file for incorporation. Things might be going well now, but that may not always be the case. Get all the awkward numbers conversations out of the way and you can go back to making your business successful.
After all your hard work starting the business, you'll want to get this right. So before you leap? Look. Take the time to talk with an attorney about any questions you have regarding this major decision.