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Small Businesses Receive Big Gains from Incorporating

Business owners face a variety of challenges on a daily basis. From inventory to growing a customer base, there’s always work to be done.

One area where the fearless business owner is apprehensive to tread is the question of incorporating.

Many see incorporating as another legal hassle they don’t have time to tackle. Plus, there’s always a cost involved, and in the end, what’s the benefit to incorporating a business?

The main reason behind incorporating a business is that it protects the owner in the event of financial difficulty or if a legal action is brought against the business.

When you incorporate a business or file for an LLC (Limited Liability Company), you’re taking a big step in protecting yourself as you strive to reach your goal of expanding your business. Why? The reason is simple: you’re inserting a liability shield between potential plaintiffs and your own personal assets. Proper steps must be followed however if you want to preserve the liability shield. One such example is maintaining completely separate financial records for personal and business expenses. There should be no comingling of business and personal funds.

Let’s say that you opened a bakery that made some of the very best doughnuts in the Baltimore area. Thanks to your baking skills, coffee shops, grocery stores, and restaurants begin to carry your confections.

Suddenly, the economy begins to slow down, and people no longer have the extra money to buy doughnuts.

Your clients stop carrying your doughnuts, and you can’t pay for ingredients, labor, and the rent on your facility. The economy proceeds from bad to worse, and you have to shut down.

Here is where incorporating a business pays off. So long as you did not personally guaranty a loan or credit line, the money you owe to your creditors isn’t owed by you, it’s owed by your corporation.

What happens if you hadn’t incorporated? In that case you’re personally liable because you are the business. This means your home, automobile, savings – everything is fair game to your creditors. You may be protected as a sole proprietor if certain assets, your home for instance, is owned with your spouse as tenants by the entireties.

Insurance isn’t even an option because insurance policies won’t cover the basic debts of a business. If all assets are in your name alone and your business as a sole proprietor fails, the only avenue you may have is to file for personal bankruptcy. If only you were incorporated.

Filing for an LLC or incorporating your business provides protection and peace of mind. The cost is minimal and the time it takes is worth it.

Remember, when you incorporate you’re taking a small step that will result in big advantages.

If you are interested in incorporating your business or have questions about the matter, contact us today!

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