At some point, owners of small businesses need to consider incorporating their businesses. However, some are still hesitant because of the pros and cons that they have to mull over before making that decision. Here are some of the frequently asked questions to help in weighing the advantages and disadvantages of incorporating the business.
- Why do you need to incorporate your business?
Small businesses start out as proprietorship or a partnership wherein the owner's assets (personal savings, house, or car) will be at risk if in case they are sued. Incorporating a business will lessen the personal liability of the owner. Here, the person's (shareholder) liability will be limited to the extent of how much he invested in the company.
- How much will it cost?
Setting up a corporation is naturally more expensive since it has a more complex legal structure. Aside from the increased maintenance and accounting costs, having a small business incorporated would also mean less tax flexibility that partnerships and proprietorships enjoy.
- Will the business have better marketing image if it is a corporation?
Yes, the company's marketing image will improve as the company would seem to have lasting power as compared to what it had with proprietorship and partnership. This is because even if the owner/s of the business dies, the corporation will continue.
- Will there be personal tax credit?
No, there will be no personal tax credit which is one of the disadvantages with incorporating. Unlike with proprietorship and partnership, every dollar that the corporation earns will be taxed.
- What about the flexibility in dividing stocks?
Well, with corporation, dividing and transferring stocks will be more flexible. The shareholder can easily divide the stock among his family members and other people who may have different types of rights depending on the stock that they have.
- Is corporation better in raising money?
Yes, it is better to raise money with a corporation. Though a corporation can still incur debts, the owners will have better chances of raising money because of the flexibility in selling the corporation's stocks.
Business owners who would want to discuss the incorporation of their business with an expert should find a good business litigator in Los Angeles as they can foresee possible problems that the owner may encounter.
Aside from this, they can also give advice and even represent business owners who are having legal problems with their employees and other shareholders.