Why It Matters To Incorporate a Business

Why should entrepreneurs incorporate a business?

There are several benefits which come with incorporation. Entrepreneurs can choose if they want to create a corporate business structure or not. Generally, however, we recommend it. Let’s look at some of the long-term benefits of incorporating a business.

Incorporation Offers Limited Liability Protection

The good news about incorporating a business is entrepreneurs receive limited liability protection when they do it.

Small businesses start out under the sole proprietorship. This is their default entity formation. A sole proprietorship is an affordable entity. Little paperwork is required for a sole proprietorship. The owner assumes responsibility for all aspects of the business. However, they do not receive limited liability protection.

Under an incorporated entity, limited liability protection creates a separation between the assets of the business and its ownership. Unincorporated entities like sole proprietorships do not receive this protection. As a result, their personal assets — like houses and cars — may be at risk in the event of an unforeseen circumstance.

Which entity offers limited liability protection? The good news is almost every incorporated entity offers this benefit. This includes LLCs, corporations, S Corporations, C Corporations and benefit corporations. Entrepreneurs who would like extra protection when running a small business may consider incorporating. Then, they can choose the entity which best fits their needs.

It Helps Establish Credibility

Small businesses need to establish customer trust. Customers who trust in the business are more likely to shop and do business with the company and spread positive word of mouth. An incorporated business can make all the difference in deciding which company a consumer should do business with and trust.

For example, let’s say a customer is choosing between two small businesses to shop at. One has “LLC” in their name since they are an incorporated business. The other does not have any documentation proving they have incorporated.

The customer is more likely to choose the business with the word “LLC” in its name as their shopping destination. By incorporating a business, small businesses can quickly establish a professional identity. This helps prove to customers the business is legitimate. They feel good about doing business with your company and trust the overall business.

You’ll Be Able To Attract Investor Interest

Most business plans drafted by entrepreneurs include a financing request. This is a document where entrepreneurs may request additional financing from interested investors.

The only problem? Many investors are hesitant to invest capital in businesses which have not been incorporated. An unincorporated business is often a red flag to investors. They may decline to invest in your business. Incorporated businesses, on the other hand, are less likely to run into this specific issue with investors. They may have an easier time attracting investor interest and receiving funding for their small business.

Are You Ready To Incorporate Your Small Business?

We can help you get started! Contact us at mycorporation.com or give us a call at 877-692-6772. Our team of professionals can walk you through filing to incorporate as a legal entity and answer any questions you have about what it means to incorporate a small business.

Once you understand what it means to incorporate a business, you may give your small business the legal protection it deserves.