Incorporating Your Business

Incorporating is essential to the success of any business. The process of incorporating entails the preparation of certain documents, including a document referred to as the "Articles of Incorporation," and filing the documents with the Secretary of State. (For an LLC, the main document used to incorporate is referred to as the “Articles of Organization.”)

Below is an explanation of why it is necessary for every business to incorporate. The primary advantages of incorporation are discussed, as are the risks involved in operating an unincorporated business.

Shield yourself from liability:

The most important reason to incorporate your business is to protect yourself from business liabilities. If you are operating an unincorporated business, its creditors may be able to reach your personal assets. Assets such as your personal residence and personal bank account can be used to pay business debts or to satisfy a lawsuit against your business. If you incorporate, business creditors cannot reach your personal assets, as an incorporated business and its owners are separate entities.

Establish perpetual existence and transfer of ownership:

Perpetual existence is an advantageous aspect of an incorporated business. Perpetual existence means that the life and continuation of the business will not be affected by the withdrawal or death of one of the owners. An unincorporated business's existence, as well as its operation, is generally disrupted by the withdrawal or death of one of the owners. Subtract this risk from your business by incorporating.

Similarly, the ownership interest in an unincorporated business may be very difficult to transfer. If the business is incorporated the shareholders can easily transfer their interest by sale or gift.

Gain tax advantages:

If you incorporate your business, there are tax deductions for a wide variety of operating costs which will substantially cut back your company's overall tax liability.