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Many small businesses consider themselves too small to worry about incorporation. However, whether you’re a self-employed social media consultant or a landscaper, incorporating or forming a Limited Liability Company (LLC) can be a smart idea. Here’s why:
1. Liability protection. First and foremost, the LLC and C Corporation, or S Corporation, protect the owner’s personal assets from any liability of the company. That is, if your company happens to be sued, your personal assets are shielded from any judgment. Of course, lawsuits are worst-case scenarios and there’s a slim chance you’ll ever run into legal problems. However, if you’re sued as a sole proprietor, you’ll be sued personally. And that means everything—from your children’s college fund to your retirement savings—is at risk. Also keep in mind that creditor judgments can last up to 22 years, so you need to worry not only about protecting the assets you have today, but the assets you’ll have tomorrow.
2. Taxes. Federal income tax rates can be lower for corporations than for individuals. And as a corporation, you may be entitled to additional deductions.
3. Credibility. Adding ‘LLC’ or ‘Inc.’ after your company name boosts your credibility in the eyes of some customers and partners.
4. Business credit/capital. As a corporation or LLC, it can be easier for you to access a line of business credit. And forming a C Corporation will be essential if you plan to seek venture capital funding.
5. Added layer of privacy. With an LLC or a corporation, in most cases the company’s registered agent goes on public record instead of your home or business address.
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