Do I Need to Incorporate My Small Internet Business?
If you've decided to start a small Internet business, you might be wondering if you need to be incorporated. There really isn't a rule that's written in concrete on this issue. It's a matter of personal preference. You can reach a decision after considering the advantages and disadvantages of becoming a corporation.
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Liability
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Limiting your liability might be one factor to consider when you think about becoming a corporation. If your business is incorporated, you'll be exempt from any legal claims against the business. In other words, if you've incorporated your business and you find your company in a lawsuit, your personal assets cannot be touched, even if the business is found negligent.
Capital
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If you need to raise capital for your business and you've incorporated it, you can sell shares of stock in the company. This can be an advantage when you need money and you don't want to either take out a loan or go to family and friends. The disadvantage of this particular aspect of being incorporated is that you will also have to give up a measure of control in the business. Once you've sold shares of stock in your company, you'll need to protect their investment to the best of your ability, even if it means going against something you'd rather not.
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Taxes
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An advantage to incorporating your business is found in the area of taxes. When it comes to the Internal Revenue Service, a corporation is separate from the company owner. This means that if there are tax issues down the road, the IRS can only go after the company assets and it can't touch your personal checking or savings accounts. However, a disadvantage found in the area of taxes is that you'll be subject to "double taxation." This means that when it's time to fill out tax returns, you'll be required to fill out a return on the cooperation and you'll be required to fill out a return on yourself.
Costs
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A downside to incorporating your small business can be seen in the setup cost. There is a good deal more paperwork to put into the system when you're forming a corporation, as opposed to forming a sole proprietorship or a partnership. In addition, corporations are subject to certain state and federal regulations which must be met. Since many business owners don't have the time to run a business and deal with that at the same time, they'll hire certified public accountants to handle the financial details of the corporation.
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References
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