Many small business owners launch their business as a side gig or a hobby, not really expecting it to start generating a full-time income. Others start that way because they have responsibilities, but they really want to get out of the job grind, so they start part-time knowing that if the effort proves to be profitable, they will eventually transition to a legitimate incorporated business.
There are many advantages of incorporating your business, such as:
1. You Can Protect Your Personal Assets
When you form an LLC or any type of Corporation, it automatically separates your business funds from your personal funds. You must pay yourself a salary and keep your finances totally separate to keep the protection that is offered. That means you should not use your business accounts to purchase personal items.
2. Your Business Looks More Credible
If you ever want to work with other larger business owners, having an incorporated business will automatically give you some legitimacy. Most people look at any business with INC or Corp or LLC in a more favorable light and will take you much more seriously.
3. It’s Easier to Get Business Funding and Loans
Once you start your LLC or INC, you are creating a separate business entity that can have its own credit rating. When you get loans for your business, you can use that credit instead of your personal credit to get loans and funding.
4. It is Part of Your Exit Strategy
It’s going to be much easier to sell an incorporated business when you’re ready to retire than it is to sell a sole proprietorship. It’s not that it can’t be done, but it’s a lot easier and more likely just due to the credentials.
5. You Can Lower Your Tax Liability
Depending upon the type of business you have, you may qualify for a lower personal tax rate because you don’t have to take out all the income from your business every single year. Of course, that may subject you to so-called double taxation, but there are ways to overcome that and gain more benefits.
You can run your business indefinitely as a sole proprietorship, but none of your personal assets will be protected against your business debt and liabilities. If you do incorporate, you can protect yourself and your family if something goes wrong. It’s the main reason to do it. Therefore, if you have nothing to protect, or you’re not engaging in a business that has a lot of liability, you probably don’t need to do more than get a business license – if it’s required in order to be a sole proprietor where you live.
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