While everyone else is giving people they care about candy and teddy bears for Valentine’s Day, give your small business the best gift ever: get it legal! Incorporating your business is a spectacular gift to yourself and your business that helps you take advantage of tax breaks and protects your assets.
Why Incorporation is Important
If you started a business without a clear growth strategy in mind, it might be time to take a look at your company now. Often, small businesses grow quickly, and owners may not know what to do to accommodate this growth. Incorporating your business is the first step to helping you get to that next level of success.
The benefits to becoming a corporation are many. First and foremost, you protect your assets. What that means is: should your company be involved in a lawsuit, your personal assets will be protected, and the responsibility will fall squarely on the shoulders of your corporation as an entity separate from yourself. This is huge! So many business owners operate as sole proprietors, which means essentially they are the business, so corporations create separation between the two, which only serves to keep you safe.
Incorporating also helps you if you plan to get financing in any form, be it through securing investors, taking out a loan, or selling stock. Having a tax ID number and acting as a corporation may draw in more investors, who take you more seriously as a corporation.
There are also tax benefits for corporations, because the tax rate for Federal Income Tax is lower for corporations than for individuals.
The Gift That Keeps Giving
If it’s time to invest in your business’ future, why not do it this Valentine’s Day? It’s a statement showing that you love your company, and that you’re ready to take it more seriously.
You may have heard that it’s better to incorporate in states with lower (or no) state income tax, but in fact, you’re better off incorporating in the state where you do business the most. You’ll avoid having to file paperwork for two states and paying fees in two states if you stick to where your home office is located.
There are several types of corporations, with C-Corps and S-Corps being the most popular for small businesses. The big key difference between the two? An S-Corp allows you to be taxed as a “pass-through entity,” meaning the company’s profits and losses are passed through to your personal tax return, and the corporation doesn’t have to pay separate taxes from you.
Once you file and are approved by your state as a corporation, you’ll still have a bit of work to do:
- Draft your Articles of Incorporation and Bylaws
- Elect a Board of Directors
- Record Corporate Minutes
There are certain papers you’ll need to submit annually, such as your Corporate Minutes, to stay legally considered a corporation, but they’re fairly easy to take care of. Just put a note on your calendar for any deadlines you have.
Investing in your business is the best gift you can give it. Creating a corporation helps you take advantage of many benefits as you grow, and helps you realize that your business is one to be taken seriously.