Incorporate: Part I - Why incorporate?

It's easy, it's safe and it's smart!

It's easy

In the parts that follow this article, I'll show you how to do it.

Many people are intimidated by the idea of incorporating, but doing your research and having good advisors at your side is all it takes.

DISCLAIMER HERE: this advice does not take the place of professional accounting and legal advice. There are many different types of businesses and shareholders, and having a good CPA and lawyer is essential to a running a successful business. I talk to my accountant and lawyers before making serious decisions like this.

That being said, here's the high level look:

  1. Get a good accountant and lawyer
  2. Determine if you really need to incorporate (see below)
  3. Get a Federal Tax Identication Number
  4. File Articles of Organization
  5. Keep up with your records
Most of this can be done online and with the right software. I will run through these steps in the articles that follow.

It's Safe

Being in a corporation rather than a sole proprietorship or partnership protects your personal assets. In a corporation, there is a complete division between company and personal property. If you're in the service industry, or if you deal with high legal risk in your everyday activities, this is essential in the event of civil lawsuits. Be careful, though! As an officer of your corporation, you can still demonstrate negligence thanks to the boys at Enron and the new Sarbanes Oxley laws. Certain industries (such as law and medicine) also have provisions about personal liability in the event of malpractice. For the most part, however, the guise of a corporation will protect your personal assets in the event of malpractice or employee conflict. Again, talk to your lawyer for further information on this.

It's Smart

Setting up a corporation can provide you with many tax benefits. The guise of a corporate entity allows you to write off many things that you would not be able to in a sole proprietorship or partnership. For example, if you have another source of income you could invest personal funds into the company and write it off on your personal income tax. Additionally, if you're not looking for loans or investors any time soon, it's easy to make the company look poor on paper. As another example, if you choose to be an S-Corporation, you can write a business loss off of your personal income tax.

You could also take a look at creating a Limited Liability Company (LLC). This provides you with some of the benefits of a corporation without as much paperwork and tax liability. State laws vary, so do your due diligence before you decide.