Why Incorporate Your Business.

Over the years it has become easier for small businesses to incorporate their businesses. Many small businesses choose to incorporate for the financial protection offered to their personal assets when they incorporate.

For example, if you are a sole proprietor, you are personally responsible for all of the activities and financial liabilities of your businesses. Opening you up for the possibility of you personally being sued. When you incorporate, your corporation is its own legal entity. So in legal matters, your personal assets do not come into the picture.

However, there are several other benefits a business gains from incorporating that you may not realize:

  • The ownership of a corporation can be easily transferred.
  • Capital can be raised for the corporation through the sale of stock.
  • Retirement plans, such as a 401K, can be easily set up with a corporation
  • The corporations life is not dependent upon its members.  If the owner dies or wishes to do something else, the corporation can still exist with simply transferring the corporation.

It is important to remember that to have the protection of your corporation you will need to insure you are operating your corporation correctly.

1. You must keep your personal and business finances completely separated. Do not use your business checking account to pay for a personal expense.

2. Do all the paperwork correctly. Corporations must keep annual minutes and resolutions as specified by the state you are incorporated in. If you neglect these formalities you might find that a judge decides that you are not treating the corporation as a separate legal entity, which leaves you open for personal lawsuits.

3. Educate yourself with your states corporation laws.