Incorporate or Not? 5 Reasons For and Against

As a small business, initially you may be starting out as a sole proprietor. As the business grows and to protect your personal assets; you may want to consider forming a corporation.

Here are the top 5 reasons for incorporating or form an LLC:

1. Limited Liability

This is the main point to form a corporation. In case the company gets sue, your personal liability and debt will be limited; whereas sole proprietor will carry all of the liabilities.

2. Confidentiality

Depending on the state, in many cases, the directors and officers’ identity can remain off the public records. You can own and run the corporation without people knowing it.

3. Raising Money

A corporation shows more credibility thereby easier to raise money or get loans. Shares of the stocks can be sold when lack of funds.

4. Asset Protection

A corporation is a separate entity. In case you get sue personally, the assets within the corporation will not be affected. For real estate, a LLC can be formed for each piece of the realty to limit exposure.

5. Estate Planning

The corporate structure continues indefinitely. Is a way to transfer the ownership through the sale or transfer of stock.

The top 5 reasons that discourage incorporation

1. Costs and Fees

Corporations costs more money to form and maintain.

2. Time consuming

Corporations requires more time for accounting, annual meetings and annual reports.

3. Taxation

Depending on structure, it may impose double taxation in the income. You will need to file more tax returns. Then again, with proper structure, you may actually save taxes.

4. Complex

Some corporate structures will require multiple officers to run. It may mean that you need to hire or bring more people on board.

5. You may not be protected.

There’s a term called “pierce the corporate veil.” It simply means that the corporation must follow its formalities (meetings, separate banking, taxing, annuals, documentations, etc.) When is not follow properly, people can seek to pierce and sue the officers.

These are just some of the concepts for forming a corporation. It is good idea to consult lawyers, accountants, and estate planners for your particular situation. Here are some sources for further info:

Intuit is offering Free Incorporation or LLC -

Intuit Free Corp or LLC

Tips Offer BY Realty Inner Circle -

Tags: asset, bylaws, corporation, estate, free, incorporate, llc, planning, protection

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Comment by Deborah Thompson on May 22, 2009 at 4:13pm: Good stuff!!! Listing the pros and cons of incorporating was a great idea. It will help many make an educated decision to incorporate or not; or at least give a better understanding of what's involved. Thanks for the info.

Comment by frank mendez on May 17, 2009 at 6:04am: If you dont incorporate, The government will steal all your money. (IRS)

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Comment by Roxie Boyd on May 10, 2009 at 8:26pm: I originally was going to go the LLC route, but I thought I was going to have a Notary License, and a Service type business can't be an LLC in California, so I went the S-corp route. Also, people, don't get roped into doing a Nevada Corp when you are doing business in your home state. There is a lot more paperwork involved.

Comment by Roxie Boyd on May 10, 2009 at 8:24pm: It is a good idea. I lived in Las Vegas for two years and worked for an incorp company, so I didn't have to pay the outragious fees that the unethical people try to jip people out of. There is one company that charges $1,200 upfront to set up your Registered Agent stuff, and then charges you $39 a month. In reality it only costs about $99 a year to get a registered agent, and no set up fees, no monthly charges. So anyone out there paying these types of fees, should get in touch with me and I can turn you on to the right people, for free.

Comment by Cranston on May 10, 2009 at 5:23am: Call Capital Auto Lockout for all your lockout needs
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Comment by Nona Lightner on May 9, 2009 at 11:24pm: very godod options and ideas to think about! I'm not anywhere near being able, or willing, to incorporate--may never be.

Comment by Daniel P. Cwiak on May 9, 2009 at 11:02am: There are always transition steps to walk before incorporation. The key is to have a good understanding of those steps before walking them. There are pitfalls for incorporation, as there are rewards for doing so. You must weigh these in the balance before jumping into this type of structure.

Remember that the wizard behind the curtain was not what he truly was or wanted to be. This is true about incorporating, and should be carefully considered before making that step.

Comment by Dale Lovett (mrsmaxxx) on May 9, 2009 at 10:57am: I've chosen to go the LLC route...a separate entity like a corporation, but not necessary to have a full board. It's kinda like a sole proprietor and a corporation hybrid. It add credibility to my business as well as opens the door to business loans should it become necessary to expand. Also you can have several businesses under the LLC umbrella.