Is Incorporating Your Small Business Best For You?

by: Jeff Schuman
There comes a point in time when every small business personcontemplates on whether to incorporate their business or not. Alot of times small businesses start out sole proprietorships,and then become incorporated as the business expands anddevelops. Small business incorporating can be a difficultdecision, and with this article you’ll gain a little bit ofknowledge on the advantages and disadvantages.There are many advantages to incorporating your small business,but limited liability is one of the biggest advantages. Whenyou have sole proprietorship to the company all the liability ofthe company is on the owner. When incorporating the business,your only liability is to however much you invest in the company.With sole proprietorship, all of your personal belongings, suchas car and home, can be turned over to help pay the debt of thebusiness. As a shareholder in the business, you have noresponsibility whatsoever for the debts of the business, that isof course unless you give a guarantee.Another advantage to incorporating a small business is theability to raise money so much easier. With the ability toraise money much easier, this increases the odds of thecorporation growing and expanding. Yes, you’re saying any soleproprietorship can borrow money and incur debt like anycorporation. However, with a corporation you can sell sharesand raise equity capital, which is a big advantage in that yougenerally don’t have to repay equity capital and it has nointerest.There are many tax advantages with becoming a corporation thatyou can take a look at as well. Some of these advantagesinclude income splitting, potential tax deferral and more. Along with the reasons above, a corporation can have anunlimited life. The life of a corporation is not dependent onparticular individuals, but the company as a whole. With this,the company has the opportunity of lasting forever just as longmerges with another company or goes bankrupt.Now that I’ve buttered up the idea of incorporating your smallbusiness, let’s take a look at some of the possible negatives.As you incorporate your small business, there now will be twotax returns to file each year, one for your personal income andone for the corporation. This may not be a huge deal, butunlike a sole proprietorship a corporation cannot deduct itslosses from the personal income of the owner. Plus, havinganother tax return is the last thing another business ownerwants to deal with.As a corporation is much larger and more complex then a smallbusiness, therefore the cost to create one is much higher. Justto set up the corporation will cost a lot more, then you have totack on the increased maintenance fees, accounting fees, andmore.As with everything else, a larger business means more paperworkthat must be taken care of. Corporations must keep a minutebook, which contains the corporate bylaws and minutes fromcorporate meetings. Reports and tax returns must be completedneatly and in a timely fashion. All of the business bankaccounts and records have to be kept separate from personalaccounts and assets. That may sound like a load, but that isjust the start of the increased paperwork that comes with theterritory of incorporating your small business.While there are many advantages and disadvantages toincorporating your small business, the decision ultimately goesto you. It is a decision that could make or break yourbusiness, therefore much more research is recommended. However,small business incorporating should be a thing that suites youand others associated with you best.