What Happens If You Don’t Incorporate A Business?

We often take it for granted that entrepreneurs will incorporate a business. After all, helping small business owners incorporate or form an LLC is one of our primary services! We work hard to educate entrepreneurs about how the incorporation process works. Our team covers everything from incorporation benefits to the differences between various legal entities.

However, what we rarely don’t discuss are the dangers of an unincorporated business. What happens if an entrepreneur decides they don’t want to incorporate a business? An unincorporated business may be subjected to more issues than it realizes. These issues can leave behind a long-term impact an incorporated startup would not have to face otherwise.

Your Business Won’t Receive Liability Protection

What is liability protection? When entrepreneurs decide to form an business entity, like a limited liability company (LLC) or corporation, they receive extra liability protection for incorporating under the legal structure.

Liability protection ensures that professional and personal assets remain separate. The small business is able to become a separate entity from the business owner. Imagine the event of an unforeseen circumstance, such as a lawsuit. Only the business will be held responsible for its actions. The houses, cars, or other valuable items an entrepreneur possesses will not be seized or sacrificed as payment. This is because liability protection ensures the safety, and separation, of personal assets.

Liability protection is a major asset across many industries. This is especially true of those in working conditions where safety may be compromised with employees. Two examples include the construction business and hospitality industries. It is possible for employees to experience injuries on-site. If an entrepreneur does not incorporate a business, they do not receive liability protection. From incurred debt to lawsuits, this makes the owner completely responsible for anything and everything that can happen to the business.

It’s Harder To Establish Credibility

There are certain industries where having a strong brand reputation is the key to differentiating your brand from the pack.

• Retail. Customers should be able to trust that their purchases are high quality and will not break or fall apart days after purchase.
• Medical practices. Patients should feel that their doctors, such as physicians and dentists, have their best interests in mind. They possess the qualifications necessary to resolve their health issues.
• Hospitality. Hotels may aspire to reach 5 star status. Increasing their credibility with customers, vendors, and suppliers will help them to achieve this goal.
• Consultants. Individuals that pursue consultancy understand that proven expertise is everything. They must be able to display a proven track record of success within their field in order to retain existing clients and obtain new ones.

The Value Of Incorporation

If an entrepreneur does not incorporate a business, guess what? It becomes all the more difficult to establish credibility with consumers. Customers may feel less comfortable about doing business with an unincorporated business. There’s much less security than there would be with an incorporated business. But, there are more chances to dwell on “what if?” questions.

How do you handle a data breach during a transaction where credit card information falls into the wrong hands? What if a surgery goes awry? What if somebody slips and falls in the hotel lobby and is injured? You may be more skeptical to do business with, or trust, this company.

Incorporating a business allows the company to include an “Inc.” or “LLC” mention after their business name. This is readily visible to all consumers, existing and potential alike. They look at your business. It is easy to see it has taken the proper steps to become a legitimate, professional establishment. Customers will feel better about doing business with a reputable company. They’ll even be able to increase word of mouth with other potential clientele!

Building Business Credit Will Be A Struggle, And You’ll Miss Out On Tax Savings.

Did you know that when you incorporate a business, it is possible to save up to 50% on taxes? Choosing to incorporate allows entrepreneurs to save extra money on taxes. This extra cash may be allocated to help grow the business in other areas. That makes it a win-win for the business and its entrepreneur.

Unincorporated businesses also struggle to build business credit more than their incorporated counterparts. Let’s say, for instance, you incorporated as a sole proprietor. This is one of the few entities that does not provide liability protection. It allows the entrepreneur to be the boss and exercise full control of the business.

However, they are responsible for all aspects of the company. Do you want to build or increase a line of business credit? Then, everyone will want to examine your credit history. They cannot look at the credit history of business because it doesn’t have one. Luckily, the struggle to build business credit is alleviated considerably when a small business chooses to incorporate.

Should I Incorporate My Business?

Incorporating a business is ultimately a choice made by entrepreneurs. Many choose not to do it because of the extra paperwork and fees. Some, in an effort to get their business up and running quickly, may even forget to incorporate entirely.

However, it’s in the best interests of entrepreneurs to incorporate a business. Doing so creates a foundation that aids to and protects your growing company.

Try Our Entity Choice Wizard!

But, if you feel lost on the type of entity to incorporate as, we have got you covered with MyCorporation’s Entity Choice Wizard. This tool allows you to figure out which entity is the best type for your small business. All you have to do is answer a series of multiple choice questions.

After taking the quiz, you’ll be better equipped to understand which legal structure is the best fit for your business. In conclusion, you will be able to incorporate a business successfully.