Why Should I Incorporate My Business?

People incorporate their business for two reasons: taxes and personal liability protection. When you incorporate your business you have one of two options, to become a Limited Liability Corporation (LLC) or a Corporation (Inc.). LLC's and Corporations, unlike partnerships and sole proprietorships, are able to deduct many expenses to reduce their tax burden. Both corporate entities provide for the same personal liability protection but the tax benefits are different. Before incorporating your business you should check with a CPA who is familiar with the tax benefits of these entities so that you chose the right form for you.

The second reason people incorporate their business, and possibly the most important reason, is to obtain personal liability protection. We live in a very litigious world. Sooner or later someone is bound to be dissatisfied with the work that you do or the product you produce. When that happens, they are likely to file suit. When they do, they sue everyone; you and your business. Owners of partnerships and sole proprietorships remain personally liable in these situations for the debts and judgments against their businesses. This means that your home, bank accounts and assets are all at risk. Owners of LLCs and corporations are shielded from liability if they have incorporated, done so properly, and have run their business like a business. In these situations a plaintiff may still obtain a judgment against the business but not against the owner. The assets of the business are at risk but not your personal assets.

You should work with an attorney who is familiar with the proper way to set up a business to ensure that your assets are protected.