When business owners incorporate their businesses, they gain numerous advantages. Many entrepreneurs start C Corporations to reap the financial and operational advantages from the beginning of their business ventures. As a small business owner, you should consider incorporating your company to improve your company’s standings. In doing so, you will gain more protection and a more financially sound situation for yourself. Whether you are your only employee or you have numerous employees working under your management, you can increase your opportunities by establishing a corporation. In this post, you will learn why you should incorporate yourself as a business owner.
Firstly, if you choose to incorporate yourself, you will reduce your personal liability. Every business owner needs to keep their personal finances separate from their business ones. If you fail to do so, you will create a confusing and potentially damaging financial situation on both ends. When you incorporate, you immediately separate your personal assets from your company assets. If your business were to get sued, you cannot lose your home, car or personal money. Therefore, you should incorporate yourself as a business owner in order to protect your personal finances.
Another reason to incorporate yourself as a business owner is to save on taxes. Unfortunately, not all business owners who incorporate gain tax advantages. However, you can potentially save a decent amount and boost your cash flow. If you establish an S Corporation, you can potentially reap some tax benefits. You will likely not have to pay direct income taxes. However, C Corporations are created differently. They typically have to pay a flat tax rate. Hire a tax professional to grasp a better understanding of where your business would lie if you chose to incorporate yourself.
Raise Investment Capital
When business owners transform their businesses into corporations, they also usually raise their investment capital rather easily. Investors prefer providing funding for corporate entities over other types of business entities. They favor corporations because they have limited liability and can also transfer shares more efficiently. If you incorporate yourself and need to transfer shares of stock to new investors, you can do so quickly. The speedy transactions keep your investors satisfied and willing to provide more funding when necessary. Additionally, many corporations make high profits. For instance, B Corporations attract conscientious consumers. Investors value these profitable outcomes as well. Form a corporation to receive the funding you need from investors.
Business owners who incorporate themselves also gain double-entry accounting. While you may have quality accounting practices in place currently, you can improve upon them by incorporating yourself. After all, corporations use double-entry accounting. This type of accounting demands two ledgers to handle debits and credits. By keeping these two financial factors separate, less errors occur. You will find yourself dealing with less accounting errors if you choose to incorporate yourself.
Easier To Sell
Finally, incorporate yourself to make selling your business easier. While you may not want to think about selling the business that you worked so hard to build, the time will come eventually. When that time does come, you will not want to jump through hoops to sell your company. Professionals can determine the value of corporations more easily than regular businesses. Rather than determining a company’s worth based on the owner, they measure value based on the business corporation itself. If you want to guarantee a smooth selling process in the future, incorporate yourself now. Use a quality incorporation formation guide to prepare your business for the transition.
Business owners choose to incorporate themselves for many reasons. By incorporating your business, you will gain liability protection and keep your personal and business assets separate. You can also potentially save during tax season, depending on the type of corporation you form. Since investors favor corporations over other businesses, you can receive necessary funding more easily by incorporating. Another reason to incorporate is to have better accounting practices. Lastly, corporations are typically easier to sell. These are the top reasons why you should incorporate yourself as a business owner.