Becoming a Corporation: Is it time to upgrade?

Ready to take your business to the next level and need the structure to help? Incorporating might be just what you need!

Congratulations! Your business has grown up. You're not longer a "mom 'n pop" operation. You might be considering hiring a couple of employees or possibly expanding with the help of investors. At this point, you may have already chosen to establish your business as an LLC or your growth may have happened so quickly that you blew straight by that step.

Regardless of how you got here, your business has matured enough that it's time to establish a more official structure. Your business no longer needs the cover of your personal liability. It's ready to be its own entity. While this may sound daunting, don't worry, we'll break everything down for you and explain why it may be time to incorporate.

What is a Corporation?

A corporation is a stand alone legal entity which provides the highest degree of protection from personal risk and liability in a business venture. Once you incorporate, the corporation essentially becomes an separate individual and con do many of the same activities a person can including taking legal action, establishing bank accounts and even owning property. Unlike sole proprietorships or even LLCs, the entity can continue to exist past the death or removal of those individuals which founded or investors who have exited the venture due to the fact that a corporation is considered an "individual".

Did You Know: There are a number of different ways to incorporate including S-Corps, C-Corps, B-Corps, Close, and non profit corporations. Each come with their own drawbacks and benefits. More on that later...

Pros

Making the decision to incorporate can be a good ideas for a number of reasons. Those include:

• Bye-Bye Personal Liability: As its own legal entity, a corporation further protects owners and investors in the business venture from being personally liable for any debts or legal actions taken against the business.

• Taxation Flexibility: A corporation gives you more options in how the business profits and your income from it are taxed. Depending on how it is structured, the corporation can act as a pass through entity, recognize the totality of the profit as business dividends, or a mixture of the two scenarios.

• Easier Access to Working Capital: Since corporations can issue shares, it become much easier to allow outside partners to invest in the business without the hassle of having to restructure each time an investor comes or goes.

• Simpler Divestment and Continuity: Whether your want to make selling your company in the future a smoother process, or you want to be sure that your venture survives beyond your lifetime, incorporation give you the opportunity to transfer ownership without the additional headache of dissolving the business and reestablishing it.

When would you choose to incorporate your business?

• From Day 1
• Once the company turns a profit
• When the company makes six-figures
• As soon as I'm ready to take it public

Cons

Corporations have a load of benefits, but as with any structure they are not perfect. Here are some of the drawbacks:

• Startup Expense: Incorporating can be expensive in terms of both time and money compared to other structures. Being sure that you have the start up resources is an important part of the decision to create a corporation.

• Specific Compliance Activities: Things like regular board meetings, adherence to the articles of incorporation, meticulously preserved meeting minutes, and distribution of annual reports are just some of the requirements for maintaining a corporation. Consider if you have the bandwidth or additional help to ensure these tasks are accomplished.

• Double Taxation: Depending upon the type of corporation you establish you may be required to pay taxes both for the company and again on your personal taxes.

• Extended Wind Down Processes: Should you ever choose to shut down the business, there is a much more involved set of tasks needed to officially dissolve the entity.

How To Get Started

The stakes are higher when creating a corporation. Therefore, it's essential to have a professional look over your business situation and advise if your business is a good candidate for incorporation. Schedule a business growth consultation with us so we can help you choose the perfect structure for your business. Click the button below to get started.

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