For many of our clients starting their own businesses, a question we hear often is whether they should incorporate. The answer to this question is not simple and requires a more thorough analysis of the business’ operations and owner’s long-term goals. However, there are several considerations to keep in mind when choosing the business structure.
1) Liability
As a sole proprietorship, you will be held personally liable for the business’ debt and anything that occurs in your business. An individual can sue the business and also go after the owner’s personal assets. If you incorporate the business, corporations are protected by limited liability. An individual can only sue the business and go after the business assets—your liability is limited to the amount you have invested in the corporation.
2) Ease of formation
Creating a sole proprietorship is simple—if you are planning to operate under your name as an individual, no registering is required. In order to incorporate, you would be required to register the business name with the Secretary of State and the documents for incorporation are more complex.
3) Administration
Sole proprietorship is the simplest kind of business structures. It is less costly and not as complex to maintain for accounting and administrative purposes. As a sole proprietor, you report income and expenses on you personal tax return (Schedule C). If you incorporate, the corporation needs to file its own annual tax return.
4) Taxes
A sole proprietor and a corporation are taxed differently. Forming a corporation can provide tax benefits such as health insurance deductions, retirement plans, and investment benefits—benefits that are generally not afforded to a sole proprietor. The tax implication surrounding the business structure is one thing you should discuss with an accountant or attorney when deciding which business structure to form.
IF YOU HAVE ANY QUESTIONS OR NEED ANY LEGAL ADVICE, PLEASE FEEL FREE TO CONTACT JV LAW GROUP AT 714-752-3270. WE ARE ALWAYS HERE TO HELP.
