Most businesses start as sole proprietorships because owners want to get their business started as soon as possible. When the business grows, the risks grow with it and the best way to reduce these risks is to incorporate your business. You will gain many benefits when you choose to turn your business into a corporation. There are two types of corporations, C and S corporations and the main difference between them is that the C corporations can have 75 or more stockholders while the S corporations can have fewer than 75 stakeholders. Here are the main benefits and reasons to incorporate your business.
Personal Asset Protection
When you own a business as a sole proprietorship, you are personally liable for any accidents or mistakes that happened in your business. It means that your house, car, and other personal assets are in danger. However, if you incorporate your business, it turns into a separate legal entity that can own properties, run a business, incur liabilities, and sue or be sued. For example, if you failed to repay a loan, you will not lose your home, as the corporation is responsible for paying off that loan, not you as a person. Incorporating your business will protect you, your family, and your assets from creditors and lawsuits.
Credibility
Another benefit of incorporating your business is gaining credibility as an official institution. Corporations’ legitimacy will make customers, vendors, and lenders trust your business. For example, if you are applying for a loan at a bank, the corporation credit score will be in question rather than your personal credit score, which will give the bank assurances that the loan will be paid. Banks will feel more comfortable granting loans to legitimate corporations than small businesses. Additionally, you can attract investors easily when you are running a corporation. Some lenders will be more tempted to be shareholders and invest in your business when it is a corporation.
Taxes
One of the most important reasons to incorporate your business is to enjoy the tax benefits that come with it. Incorporated businesses have several tax deductions that are not available for sole proprietorships. If your business has some losses, you can spread them over a longer period, and according to the company incorporation experts at sleek.com/sg/incorporation, you can deduct operational and startup expenses from your taxes. Any employee benefits you offer will also be deducted. However, corporate taxes are much more complicated than small businesses’ ones, so you should consult with your accountant or tax expert to get the whole picture.
Perpetual Existence
If you want to protect your business even after you are gone, incorporating your business will achieve that for you. The business can still be sold or closed if it fails, but if it is still running, it can exist perpetually as it acts as its own entity. It means, also, if you lost a business partner, you can carry on with business as usual. You will be able to create long-term plans for your business to grow without worrying about unexpected events. Additionally, the business will run without reestablishing itself several times. For example, if you want to transfer the ownership of the business to your offspring after you get old, it would be easier if it is incorporated.
Brand Protection
The brand is one of the most important assets of any business, as it is not only about the name and the logo, but is also the way you operate your business. Your brand involves variables such as your marketing phrase, slogans, colors that represent your business, how your office or store look and feel, and the products you offer. When you turn your business into a corporation, you don’t only protect its name, but you also protect its whole image. Business incorporation lets you protect the business name, brand recognition, and trademark which can include any words, phrases, symbols, or designs that make your business different from others.
It is not necessary to incorporate all businesses, but most of the time, businesses reap the benefits of incorporation. It makes your business a legal entity and protects your personal assets from any lawsuits or creditors. If you want your business to be more reputable, incorporating it will raise its credibility immensely. Incorporating your business will help it grow as you can attract funding more easily via investors or creditors. Your business will last forever as long as it is successful and you will gain the tax benefits of a corporation. Turning your business into a corporation might seem like a daunting task, but you can find lots of resources that will help you along the way.
