Why You Should Incorporate (and How to Make it Happen)
If you’re like most entrepreneurs, you see a lot of parallels between your business and your children. You love them and nurture them while they grow. You sometimes get frustrated at them. And above all, you want to protect them and keep them safe. That’s why this year, I want to encourage you to incorporate your small business. Now, you might think your business is too small to need incorporating, but businesses of every size can benefit from forming a corporation — including home-based businesses. In fact, there is no business too small to be a corporation!
Why It’s Essential
There are so many perks to becoming a corporation. Where do I begin? Let’s start with the tax benefits: because corporations are taxed at a lower rate than individuals, you can collect some substantial tax savings once you change your business formation status. But don’t worry: you don’t have to do anything different on your taxes. Just file your personal taxes as usual, including the financial details from your corporation. And going back to that protection reference: as a sole proprietor (which you are by default if you haven’t elected a different business status formally), your personal assets are hanging out in the air, vulnerable to lawsuits and bankruptcy. Should someone sue your business, they’re essentially suing you, and your assets could be seized to cover bank and legal fees. You don’t want that, so take the steps to protect what you’ve got. And finally, incorporating can lend more credibility to what you do. Having that “Inc.” at the end of your business name tells potential clients that you’re not going anywhere, and that they can trust your brand.
Great. How Do I Get Started?
If you’re envisioning this complex process to incorporate (maybe that’s why you’ve been avoiding doing it), I’m going to have to disappoint you. You have several options for getting incorporated, but they’re all easy enough to do. First, you can go the DIY route. You can visit your state’s Secretary of State website to download the forms (for example, if you wanted to incorporate in California, you’d go here), read the directions, and fill them out. Once you submit them, be aware it can take several weeks or even months before they’re approved, so you can’t start officially operating as a corporation until you get word back. It will take a bit of your time and brain energy with this option, but the only cost is your state’s filing fee. Another option is hiring a lawyer. Now, for many businesses, this is overkill. You don’t need to pay an expensive lawyer to incorporate for you, but if you already have legal representation or have a complex business structure, you may consider it. A third option is to work with a legal document filing service. They exist solely to help businesses like yours incorporate or handle other business filing needs. You’ll pay far less than you would with a lawyer, and you just have to answer a few questions about your company, then they’ll take care of the rest. The perk of this option is that if you are in a hurry to become a corporation, they can expedite the process for a modest fee. Whether you’re just now starting a business or have been operating for years, it’s time to take the appropriate measures to protect that (business) baby.