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.