When you start a business there are many decisions that must be made. One of the first and most important decisions is how to structure your company. Incorporation is a popular option. There are both pros and cons of incorporation, and what is right for one business may not be good for another. It is best to understand the advantages and disadvantages of incorporating before you make this significant choice.

Personal Asset Protection

Incorporation provides some safety should the business fail. When setting up a business as a sole proprietorship, there is basically no separation between you and your business. Should the business lose money, you could end up losing quite a bit. For example, if the business owes money to others, they could end up taking legal action against your company and you, personally. A corporation business structure protects you personally against such potential problems. Therefore, incorporation is generally a less risky business structure.

Tax Payments

Taxes should be a major concern when structuring your new company. There are some tax pros and cons for incorporations. Taxes can usually be paid according to a flexible schedule, making tax payments less complicated. There may be other tax perks available to corporations. However, it is important to know that tax calculations may be higher for corporations than for other types of businesses, such as sole proprietorships. Taxes are typically based on the size of the company and the income. It is helpful for corporations to hire accountants to review their taxes.

Business Professionalism

Incorporation of your business is one way to show the world that your company is real. Many companies come and go, but corporations are often considered by most people to be legitimate, long-standing companies. A corporation is able to legally add “Inc” to the end of their name. Websites, marketing, business cards, and brochures, all look much more official coming from a corporation. Some types of businesses may fair better against competition if they are incorporated.

Incorporation Costs

Starting a sole proprietorship is relatively easy and inexpensive. However, setting up a corporation requires submission of the proper paperwork and payment of the proper fees. In order to make sure that your corporation is legal, and to protect your company, it is best to discuss your legal business structure options with a qualified business attorney. Your lawyer will review your business information, answer your questions, and assist in preparing the documents necessary to properly structure your company.

This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Pros and Cons of Incorporation, or any other litigation matter, please feel free to contact us at 480.461.5300,  log on to udallshumway.com,  or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.