How to Understand the Benefits of Incorporating

Turning a business into a corporation affords a number of benefits. Among the most persuasive reasons that business owners choose to incorporate is that the corporation becomes its own entity, liable for its own debts, relieving owners of individual liability. For instance, even if your business goes bankrupt, your personal assets such as your home cannot be seized.

Things You'll Need

• Computer with Internet access

Instructions

Consider the Effects of Incorporation

1. Ask yourself if you want to create an entity that can exist after you are gone. One of the benefits of incorporating is that the business can continue to survive on its own and can more easily be sold to another party.

2. Consider the pros and cons of raising money as a corporation. Corporations can issue stock in order to raise capital, unlike unincorporated business which have to take out loans and pay interest. However, stock owners, or shareholders, will then have a say in the running of the company.

3. Understand that corporations are taxed at more favorable rates than are individuals or unincorporated businesses. Also, since they become separate entities, corporations can even own stock in other corporations.

Determine Whether You Are Eligible

1. Know that every state will have its own incorporation laws, although the basics of incorporation are fairly similar from state to state. However, some states will allow a single person to incorporate, whereas other states will not.

2. Consider the filing fees of corporate set up, the fees of attorneys you may choose to consult with, the fees to file for a foreign corporation in other states in which you choose to do business and also consider pension plans for future employees. Decide whether your business can bear the expense.

3. Order incorporation forms online from a site like All-Business.com (see Resources, below). Your first step should be to file a Certificate of Incorporation.

Tips & Warnings

• Talk to other business owners. Ask them what worked for them along the way, and also ask what they would do differently. Do everything you can to understand what you are getting into.

• Take at least one business day to research the pros and cons of incorporating your business. Any extra time you spend in the planning stages will likely reward you in the long run.

• Your local chamber of commerce can connect you to other business owners in your area and can help you understand how to avoid common mistakes.

• Know that although there are benefits to incorporating, there are also pitfalls in incorporating, including office expenses, the fees for forming the corporation, and fees for filing in other states as a foreign corporation.

• Incorporating can relieve you of some personal liability, but expose you to other concerns. Consult a corporate lawyer specializing in formation of businesses to obtain a clear idea of your situation.