It’s a Must for Your Business to be Incorporated
Out of the thousands of business owners in the world, it’s actually surprising that there still those businesses that aren’t incorporated. Maybe because they are confused and unsure of what they will be handling once they incorporate and some might be scared of the payment or the additional taxes.
Other factors that would lead them to back off with incorporating their business is the lack of information on how important incorporating is in their business, it’s high value and the guarantee of helping you make your business one of the biggest companies someday.
But you don’t have to worry about where to find information and idea about the value of incorporating your business, because this post will offer all the information that you need. You will definitely be guided with what to do and what to expect especially when you’re just starting your business. Steps will also be included for you to follow in order to broaden your idea about incorporating and legalizing your business.
Learn more about incorporating a business
Incorporating your business means legalizing your business which is recognizing or enlisting your business under the law which gives it an affirmation that your business is legit and that it is guaranteed to last long and also easily reach success and expand because as soon as it is made, this legal establishment will be entertained and treated separately from the shareholder and its founders that means the shareholders will have less responsibility and liability. This would definitely reassure the safety of your business.
When you are choosing or thinking of a corporate name that would suit with the products you are selling, it still must have a legal ending like “Corp”, “Ltd” or “Inc.” which is an abbreviation for “corporation”, “limited” and “Incorporated”. And also, each state has different process in registering your company. Of course, when you incorporate your business, it means you are registering it which involves money, that means you have to pay a fee with an amount of $25 up to $1,000 depending on what location you are in because each state has different fees, and it will also depend on the operating name that you choose.
The positive gains from incorporation
It is raining of advantages that you will receive when you are going to incorporate your business. But mentioned below are the top 6 reasons that you must know about:
- Prolong Longevity
- Guarantee Safety and Protection of Your Personal Assets
- Less hassle and Easier to have Your Retirement Plans
- Quick to Transfer any Ownership
- Much Less Taxes to Pay
- Separate credit rating regardless of an owner's personal score
All of those 6 business structures have individual benefits that are different from each other, but before diving in into details and information you must learn some of the disadvantages of having an incorporated business.
The negative gains from incorporation
Every positive thing has a negative side to it, check out some of the few disadvantages in incorporation that some may encounter especially those small businesses:
- Never ending paperwork
- Involving money because of the payment of fees
- There is no assurance of the liability protection
After absorbing and analysing in your mind the advantages and disadvantages that you will experience when incorporating your business, you can now proceed to the options that you would want to consider.
Have an insight about the variety of business models
When you are located in the United States, you can choose six business models that would be good for your company. These six business models that you can choose from are a limited liability company, a cooperative, a partnership, a sole proprietorship, a corporation or, and s corporation. Below would be an overview of the options that you would want to consider.
Get to learn about sole proprietorship
This kind of business form is very popular and is mostly used by ecommerce merchants in the United Stated because not only it is very easy to manage, it also is less headache because it is an unincorporated business that has no legal difference in the person who owns the company and the company itself.
When you are just start and new to the industry, its recommendable for you to use this kind of business model because of the less liability you will have to encounter. When you say liability there will be no need for you to file taxes, no one will have to manipulate and change anything about your business only the owner has the power to control it and lastly it has cheap start-up costs. You just have to you’re a business license in your state, all you have to do is just register either your name or someone else that is a part of your business then you can start your business right away.
But there is also a risk on this kind of business model, as stated above that the owner of the company and the company itself have no difference, it means that the owner of the company is liable and will own up to everything the company does or decides to do, this also simple means that everything that the owner has or the assets are at stake. This also has to be no one else included, this only needs one person there for a sole proprietorship will be voided. Also keep in mind that all taxes will be named under the owner of the sole proprietorship.
Get to learn about Limited Liability Company
The Limited Liability Company or the LLC is kind of unfamiliar to many business owners maybe because of its high and unique business structure, it also has an ease partnership in corporations that are accountable of protection. Many also doesn’t know how to sign in for an LLC, which is kind of why they tend to take it as their last option. Those who are members or are a part of LLCs pay their taxes directly on their LLC profits, they also do not file taxes as different legal entity. It is also foremost to keep in mind that LLC differs depending on what state you are in.
Unlike any other corporations that are overloaded with records and paper works, LLC is more less hassle and only has a few things needed. LLC is also loaded with less profit-sharing requirements and they guarantee safety and protection for all the properties of each member. It is frequent for members of the LLC to pay for payroll tax, it is mandatory for them to order additional forms for both federal and state taxes that will depend on how many members are signed up, the LLC articles and local laws.
It would be very useful for you to hire a lawyer that could assist you when joining LLC or you can consult to a professional public accountant to ensure you from not having any issues in the future. Because LLC doesn’t guarantee you a life time service, this will only last as soon as no one from the LLC members leave, because as soon as the members leave the LLC will automatically be gone. When you would want to start in LLC it would require you lots of effort and time, it is much more of work than building bond and partnership with other business owners.
Get to learn about partnership?
Let’s get started about knowing what partnership is, it means it is a business that involves two or more owners. The owners all have different contributions and task that they do like the funding, skill, or labour. But they all share one goal, which is to make their business become successful which is to reach their goals. All of them work hard for it to become possible.
There are two types of partnerships, which sets different rules and process. The general partnership makes sure that the business is fairly divided depending on the percentage of ownership that are documented on the partnership agreement that they made. While a limited partnership can change and limit the control and responsibility for those specific partners.
It is compulsory for every partnership to have a registration, but it doesn’t mean that it requires a registration you have to undergo plenty of steps and outputs, it is just easy for you to register. Even though in every stated there might be some differences in submitting requirements in forming a partnership, but it still all boils down to submitting requirements and the payment of fee which doesn’t need huge amount. It also should be understood that being partners you must share all the given liabilities and profits.
Get to learn about cooperative?
You don’t have any idea about the meaning of cooperatives, it is a kind of business that are made to offer great service for the owners, the owners would surely be that star of the show and would gain benefits from this, to make it short the owners are the customers. Cooperative are also very organized which are very hard to find and is the opposite from any ecommerce merchant. It is absolutely a great business for sure.
If you are still confused about what cooperative really is, one great example is a labour union that runs an online uniform store, and that it would be easy for union members to buy wholesale price of work clothing that they could use.
Get to learn about corporation?
One good thing about corporation is that they are a legal entity which means the owners are free and not responsible from any personal responsibility. This would be very beneficial for the owners because they are safe if anything bad happens, they will surely not be held accountable for any unnecessary events.
The same as others, all of the rules and regulations set for corporation depend on which state you are in. Simple thing is that before you register for a corporation you must have a company to make it happen. Once you have registered to a corporation you are obliged to pay for state, local and federal taxes that are registered individually by its shareholders. Before paying you must need to prepare for a tax ID number, follow all the rules, regulations and laws for this industry. You must need to guarantee you have read and understood all of the rules stated.
The best thing you could gain or benefit from registering to a corporation is that your personal assets and property is protected and safe, it would not be involved with the corporation’s assets or debts which is great in order for you to have a guarantee that all the things you have earned and worked hard for would not get involved if ever you have issues or problems involving with the corporation.
One example of how things go with a corporation, is if there would be one customer who will sue a retail corporation and eventually won the case, the corporation is obliged to pay the customer that sued them. But if the corporation no longer has the money to pay for it, the shareholder is not accountable to pay for it.
Corporation is very easy and accessible because unlike any other business types, corporation can easily transfer any transactions without any hassle and your sell your shares for you to raise your corporation's capital, which would be very pleasing for employees for them to be compensated with the shares that the corporation has.
You must make sure that you are focused on maintaining the corporation’s records so that you will not lose the limited liability that your corporation has. Once it is proven that you have not maintain your corporate records you will also lose the protection for personal property. Handling a corporation is not easy, so you must be serious in dealing with it.
Depending on what state you are in corporation might pay lower taxes than individuals, so it would be very helpful to you if you would analyse and differentiate tax rate, including sole proprietorships, LLC or partnership with corporate tax rates.
There are also instances on where some companies or shareholders get to pay their tax twice which is absolutely unfair and unjust. These instances happen when the corporation pays taxes with the use of its profits and the shareholders pay taxes on their shared profits with the use of their own income.
Get to learn about S corporation
Mentioned above is a case of double tax problem, the S Corporation is the solution to avoid this kind of case, it is formed by a special U.S Internal Revenue Service (IRS) tax election. If you are one of the owners of an S Corporations you will only have less responsibility which is also the same as any other corporation, but you are ensure to only pay your tax just once.
Just like any other corporation, the S corporation also has the same rules and regulations also with its record keeping making it is a negative load for other small retailers.