I receive many emails with people looking to start there small business. The main question I answer is, “should I incorporate a business or start it as a sole proprietorship?”
I explain, INCORPORATE! Would you spend a few hundred bucks to incorporate and protect yourself from liability? or start as a sole proprietorship (mix personal and business), and when something terrible happens lose all your life’s work?
As an expert I suggest you incorporate your business. It’s cheaper to spend a few hundred bucks to incorporate now, then spend thousands of dollars later trying to defend yourself from professional takers.
Legal Benefits of an Incorporation
There are many benefits of incorporating a company. One of the most important legal benefits is the protection of personal assets and sole proprietors (you work under your name) and general partners (partnerships) in a partnership are usually personally and jointly responsible for all the payable’s of a business such as loans, accounts payable, and legal judgments.
In a corporation, however, stockholders, directors and officers usually never liable unless otherwise agreed to or in the case of fraud the company’s debts and obligations. The only liability they may have is the equity they invested in the corporation. For example, if a shareholder buys $400 in stock, only $400 can be lost. Corporations as well as limited liability companies (LLCs) may hold assets such as real estate, cars or boats.
If a shareholder of a corporation is personally involved in a lawsuit or bankruptcy, these assets may be protected. However, the creditor can seize ownership shares in the corporation, as they are considered a personal asset and gain a charging order against an LLC.
Easy To Transfer Ownership
When you own a company with many assets all you have to do is sign a share purchase agreement and all the assets and liabilities remain with the company, not you.
Corporations are taxed at their own rate and are separate from you personal income. However, LLC’s are usually taxed with the members income.
It’s important to think of a corporation, LLC, or another type of legal structure as a human being. Are you responsible for your friends bills? Of course not! corporations work the same way.