To Incorporate or Not to Incorporate?

One of the first steps in starting a new business is determining its legal structure — will it be a sole proprietorship, general partnership, limited partnership, limited liability company, S-corporation, C-corporation? Whether a business has one owner or multiple owners, the question of whether or not to incorporate will need to be decided. An experienced Monmouth County business attorney helps new and existing business owners weigh the pros and cons of incorporation and make the decision that is right for them.

Reasons to Incorporate

One of the biggest advantages of incorporation is the legal separation it creates between the business and its owner(s). If the corporation files for bankruptcy, defaults on a loan, loses a personal injury or employment lawsuit, or otherwise gets into financial hot water, creditors typically cannot touch the owners’ personal assets. In addition to offering personal asset protection, incorporating also has many other potential benefits, such as:

  • Business name protection
  • Increased creditability from the “Inc.” after the business name
  • Access to banks that prefer lending to corporations
  • Tax breaks, such as writing off health insurance premiums
  • Avoidance of double taxation by electing S-corporation status
  • Ability to raise capital by selling stock
  • Ability to attract employees by offering stock options
  • Ability to establish a 401(k) retirement plan
  • Opportunity to create a management structure and chain of command
  • Continued existence unaffected by shareholder entry, death or withdrawal

If you decide to incorporate your business, it is important to work with an attorney who specializes in business transactions to ensure the corporation is set up and managed properly.

Potential Drawbacks

Incorporating can have its downsides too. Some of the potential drawbacks include:

  • Paying initial and ongoing incorporation fees
  • Developing and updating corporate bylaws
  • Following strict record-keeping requirements
  • Maintaining the corporation’s financial independence
  • Having to hold meetings of directors
  • C-corporations: paying both corporate and personal taxes (double taxation)
  • S-corporations: being limited to 100 shareholders

Depending on the size and nature of your business, anticipated future growth, potential tax benefits or consequences, and other such factors, incorporating may or may not be the right choice for you. To discuss the possibility of incorporating or for assistance with the entire incorporation process, contact a qualified Monmouth County business lawyer today.

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