The decision to convert a sole proprietorship into an LLC or corporation is a big step. In order to conduct business legally, an LLC or corporation must incorporate with the state. When filing to establish a business entity, entrepreneurs must file articles of incorporation, providing information about the business. Typically, this information is available to the public. As you are going through the process of forming an LLC, you need to be aware of the importance of the articles of incorporation. There are many critical reasons to file articles of incorporation for LLC owners.
Tax advantages are a major reason to file articles of incorporation. Incorporating a business in some states can lead to tax breaks for the company. You may be able to write off health insurance premiums, earn savings on self-employment taxes, and lower deductibles on life insurance. These tax cuts can help your corporation lower its overall tax liability. Additionally, by electing Subchapter S tax status, a corporation can avoid double taxation of corporate profits and dividends. Business owners who file articles of incorporation will be looking at serious tax advantages.
Filing articles of incorporation can lead to flexible ownership transferability for your business. Ownership in a corporation is more easily transferable than in an unincorporated business. Stocks determine ownership within a corporation. So by transferring ownership of stocks between individuals in the company, you transfer ownership. This transferability and the flexibility it grants is another big reason to file articles of incorporation.
A business that has filed articles of incorporation can benefit from liability protection. A corporation acts as an entity separate from the owner, which means the owner’s personal assets will not be at risk from business liabilities. This includes any personal property, vehicles or bank accounts. An unincorporated business would be vulnerable to using personal assets to pay back business debt. Liability protection is one of many reasons to file articles of incorporation. As you are completing LLC formation documents, consider how valuable the articles of incorporation are to your liability protection.
Credibility & Corporate Image
Filing articles of incorporation can boost the credibility of your business entity. Customers and vendors may be more inclined to trust businesses with “Incorporated” or “LLC” in their brand name. Potentially, investors and banks might be looking to finance or invest in your business. They may see your corporation filing as a sign that your business is worth their time and money. Additionally, in the majority of states, other businesses will be unable to use your corporate name. This can help build your unique brand and upgrade marketing. Enhanced corporate image can be gleaned by filing articles of incorporation.
Establishing Perpetual Existence
A business that files articles of corporation will find ease in the establishment of perpetual existence. Corporations and LLCs can continue to exist in the event ownership changes. Whether the owner dies or sells his or her own interest in the company, the corporation will continue to operate if so desired. This is a big deal for a company who wants to continue to grow and endure. Establishing perpetual existence is a considerable benefit of filing articles of incorporation.
Converting your sole proprietorship into a corporation by filing articles of corporation is a near necessity for business owners, yielding many benefits. Filers will find they’ve gained access to many tax advantages. Ownership transferability is available and easy. The articles of incorporation also limit LLC liability. Consider the boost to your credibility and the corporate image of your company. And, always be aware that you can establish the perpetual existence of your ongoing corporation. Take all of these reasons into account and you can see why business owners should seriously consider filing articles of incorporation for their sole proprietorship.