The Pro's and Con's of Incorporation

When you own a business, you get to “call the shots.” And, while there are definitely some perks to being in charge, it also means making tough decisions.

One of the toughest business decisions you’ll ever to make is whether or not to incorporate your business. And, unfortunately, there aren’t any easy answers about what you should do. It’s simply a matter of what works best for you.

What you can do, however, is educate yourself on the various pros and cons of incorporating your business. Doing this will help you to make an informed decision.

Also, remember that this decision is not set in stone. Though it takes some work, you can always reverse incorporation if need be.

Pro: You’ll Enjoy Limited Liability

One of the best things about choosing to incorporate your business is that you’ll enjoy limited liability.

This is definitely not the case in a sole proprietorship. In that business model, you, as the business owner, will assume full responsibility and liability for the company.

With an incorporated business, however, shareholders share the liability based on the amount they’ve invested. This can really take the burden and fear off of your shoulders!

Con: Too Many Taxes

Heading on over to the negative side, many people gripe about the fact that incorporating their businesses mean yet another tax form to fill out. Most people truly hate filing taxes, and adding more to the mix is the last thing they want to do.

Unfortunately, though, when you incorporate your business, you’ll need to file both a corporate tax return and a personal one.  Of course, if you have a skilled accountant to handle this for you, it won’t be too much of a burden.   

Pro: Continuance

Something you’ll like about incorporating is that your business will not have an “end” to its lifespan. It can keep on existing even if you switch shareholders or sell the business to a new owner. Continuance of this sort doesn’t happen with a sole proprietorship, so this is a very nice advantage of incorporating.

Con: You’ll Have to Pass on Personal Tax Credits

People are often very disappointed to learn that corporations are not eligible for personal tax credits. In fact, corporations tend to be taxed pretty heavily. That, plus the lack of tax credits, can be bothersome (and expensive) for a lot of business owners.

However, with the right accountant, you can find other ways to save money, so you won’t feel the loss of personal credits too much.

As you can see, there are definite pros and cons to incorporating your business. If you’re still on the fence, talk over your options with a professional to determine what the best course of action is for you and your business.