A number of people would begin this article with saying, “you should decide whether or not to incorporate.” I don’t agree. I think if you’ve decided to go into business AND you want to do it the right way, you’ve already decided to incorporate, but you’ll need to in order to protect yourself. Incorporation is the best way to set your business up as a separate entity and therefore, protect your personal assets. Incorporating also provides you and your business with greater prestige, liability protection, and overall, a more professional image. Being a responsible and successful business owner, means protecting it as well as yourself.
Incorporating can provide protection and benefits for large businesses as well as small ones. There are different types of entities and you’ll need to decide which one works best but they all provide certain benefits for you and your new business.
- Tax Benefits are by far one of the best. Having a corporation or LLC allows you to be paid a salary, write off your business expenses and avoid double taxes on your profits as income.
- Protection from liability is also important. Incorporated businesses are considered separate entities from their owners. That means, if you get sued, your business is protected and if your business is wrapped up in litigation, your personal assets are protected, as well.
- Banks and other funding sources are more willing to lend to incorporated entities for a number of reasons. Officially incorporated entities are looked at as more legitimate, and overall, as better managed. Should you need a loan for your business, being a separate entity also means you are not utilizing your own credit and finances, in many cases, to qualify for business funding.
Incorporating in New York State is a fairly simple process, but you want to be careful to not overlook important details. Articles of Incorporation need to be carefully drafted and I can help you do that! In fact, the hardest part is deciding what business entity works the best for you. There are several to choose from and it can be a bit overwhelming. Keep in mind, you can change entities as your business needs change so don’t feel like you can’t update and switch as necessary.
Let’s take a look at some of the options:
- Sole Proprietorship – This is not even really an official entity (as far as protection goes). There is nothing very official about creating an SP. In fact, simply by conducting a business, you have created an SP. There is no legal distinction between you and an SP. You are the same person, bound together as one. All taxes are handled on your personal filings and you have no personal protection from liability in the event either the business or you are sued.
- Limited Liability Company – Often called an LLC, is like the new kid in the class, and therefore very popular! This is the go-to for small businesses and it gives benefits that are extremely valuable and similar to a corporation without the extra formalities and compliance concerns that come along with running an S-Corp or C-Corp. An LLC creates a separate legal entity which provides liability protection, but only as long as the business remains separate. Pass-through taxation is available as well as the option to have multiple owners.
- S-Corporation – Often called an S-Corp and are popular as well. Not as popular as the LLC but, one of the cool kids. This is an option for smaller businesses and provide liability status. S-Corps are also able to issue stocks to gain investment capital (there are limits to this benefit). An LLC cannot issue stock. S-Corp’s are also not subject to double taxation.
- C-Corporation – You know what these are. These are the big dogs, the fat cats, the big businesses of the business world. So, what makes them special? Well to start, it is the only business entity that can issue an unlimited number of stocks (think – LOT’S OF CAPITAL). It also is able to have different classes of stock. If you will be depending upon investment income to start your business, this is almost most certainly your choice. For a smaller business with no outside investors, this may be too much. Too much compliance, too many formalities, just too much. No need to overwhelm yourself any more than needed.
- Partnerships – This entity is pretty self-explanatory. It’s a business run by two or more individuals who contribute and profit according to an agreement. For the most part, straight forward. But like all romances, the romance ends when one of the individuals leave. Even if you don’t want them to leave. An LLP protects the partners from liability but not all partnerships provide that protection.
You can change entities if your business grows – and who doesn’t want their business to grow??? What’s good is that there are options that allow you to switch! So, if you’re currently an SP (which I don’t recommend being for a long period of time), you can incorporate. Changing is fairly easy but (a little more difficult for corporations) but it can be done. I don’t recommend going at it alone. You should consult a kick-ass attorney (I think I know one) to discuss the easiest way to do it and provides the most protection.
In ‘Get Structured – Accelerated’, you will find all the forms you’ll need for most entities in New York state along with instructions on how to file, including the forms!!!! Which means, by purchasing GS, you’re making an investment that will be with you should your business grow or you decide to change!!! Now that’s what I call a great investment.
What’s best, is that the cost of GSA is much less than you think. A lot less….take a look at everything that’s included here.
Next time, we’ll go into business licenses. Until then…