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Maintaining Your LLCs Articles and Resources

Protect What’s Yours: The Top 10 Benefits of Incorporating Your Business

by | Jan 1, 2019 | , , , ,

Starting your business from scratch is a big deal. There are a million details to take care of, and the list of demands can seem endless. Small business owners have to hire employees, worry about taxes, and find ways to maximize profits while keeping costs as low as possible.

Every smart business owner should consider the benefits of incorporating. This is an important decision that has a significant financial impact.

Let’s take a look at the reasons why this is a smart move by helping you understand a few of the benefits.

Protect What’s Yours: The Top 10 Benefits of Incorporating Your Business

Have you heard about business incorporation but aren’t sure why it’s worthwhile? Read on to learn the top 10 benefits of incorporating your business.

1. It Protects Your Personal Assets from Lawsuits

Incorporating creates a safety barrier between you and your business. This is important because believe it or not, if you don’t incorporate your business, you run the risk of losing your personal assets when sued. Incorporating protects your personal assets if a lawsuit is filed against you.

2. It Protects Personal Assets From Creditors

Incorporating also protects your personal assets from creditors wanting to collect on business debts. This is accomplished by forming an LLC, or a C or S Corporation that protects your personal property in the event that your business falls on hard times.

When not incorporated, your personal property will be automatically linked to your business, including your home, investment accounts, cars, as well as future assets.

3. It Makes It Easier to Transfer the Business

Someday you may wish to sell your business or pass it on to a member of your family. Or perhaps you will get sick and no longer have the energy to continue running things. This is something many people don’t think about until they are near retirement.

When you are running a sole proprietorship, all of your personal property is linked to your business, making it very difficult to value the business or transfer it to someone else. Incorporating makes this process much easier.

4. It Allows Your Business to Grow Long After You’re Gone

The reality is that you won’t be around forever. Despite this, you will likely wish for your business to flourish long after you’ve passed away. When you are incorporated, probate won’t touch the business directly. The business will simply go directly to the new owner assuming you have the proper documentation in place.

5. It Has Huge Tax Benefits

Incorporating also offers massive tax benefits, such as the ability to deduct travel expenses and Social Security taxes that you’re paying into the system, deduct business losses, and claim some daily expenses required to operate the business.

Keep in mind that when you make the transition from being a partnership or a sole proprietor to an LLC or similar business structure, there are a multitude of deductions available to you that weren’t at your disposal as an individual.

6. It Makes It Easier to Raise Investment Capital

Another significant advantage of incorporating your business is the access it gives you to raising vital capital. The ability to borrow money is very important to any business, and being incorporated adds a legitimacy that helps when applying for loans.

It also allows you to open bank accounts and establish lines of credit that will make it easier and more efficient to operate your business.

7. It Makes it Easier to Sell Your Business

Incorporating also adds legitimacy to your business in other ways. Sole proprietors simply aren’t as attractive to potential buyers.

This is due to the fact that corporations are easier to track and manage, and they tend to be more stable. These are things that are of the utmost importance from an investor’s perspective.

Being incorporated also gives you a leg up when there are competing businesses that a buyer might be interested in.

8. It Helps Protect Your Brand

When it comes to owning a business, branding is everything. Keep in mind that if you don’t take the necessary steps to protect your brand, it’s possible for someone to swoop in and steal it.

That’s why incorporating is also important for protecting your brand. This includes everything from your business name, slogans, logos, and colors that represent your brand, to trademarks and any designs that distinguish your business from everyone else. Not sure if you’ve got a brand worth protecting? There are some tweaks you can do immediately to improve your brand.

9. It Makes Establishing Retirement Accounts Easier

When you own a business, you want to make sure that you and your employees are taken care of beyond a basic paycheck. Many companies provide health savings accounts and retirement accounts to help employees plan for the future.

Incorporating makes this process less expensive due to tax-advantages, and there is far less red tape involved in setting these types of accounts as a corporation compared to a sole proprietorship.

And even if you don’t have employees, there are still plenty of advantages to setting up accounts for yourself by incorporating your business.

10. It Helps Protect Your Privacy

One of the biggest benefits of incorporating your small business is something you might not have considered.

When your business is incorporated, you’re better able to keep your personal information hidden. This is especially vital for companies who need to closely protect trade secrets. For many companies, this level of privacy is what helps them maintain an edge on the competition.

Incorporating allows you to keep all of your business affairs private, and they will be kept completely confidential unless you make the decision to disclose them.

Taking Your Business to the Next Level

When you take the time to consider the benefits of incorporating, it really doesn’t make sense not to. After all, the advantages of incorporation not only include ways to save money, they also provide brand protection and allow you to more effectively manage the long-term needs of your employees.

As you can see, there are plenty of good reasons to incorporate, and far fewer reasons not to. So take your business to the next level by incorporating!

Good Standing: Are You in Good Standing?

by | Jan 8, 2015 | ,

When it comes to corporations, LLCs and Limited Partnerships, good standing is a legal requirement. And the consequences of not being in good standing, while unfortunately unappreciated by most, can be devastating.

Good standing sounds important. It conveys the sense of ethical and upright activities. It is a place from which you want (or should want) to operate.

Almost every state requires each corporation, LLC and LP formed there or qualified to do business there to file an annual report.

The purpose of these periodic filings is two-fold. First, it allows the state to collect their annual fee from the entity for the upcoming year. And make no mistake, these filing fees add up and are a very important and stable source of state revenue. Second, the reports confirm whether the entity is still active in the state.

The entity that fails to file its annual report (and also does not pay its fees to the state) can lose its good standing status. What does this mean?

A Case Study in Good Standing

Matt and Scott owned an auto repair shop. They were both busy and although they had formed a corporation for limited liability purposes they had failed to attend to the follow up paperwork. While the corporation had been formed in 2008, they had not filed any later reports or paid the fees for 2009 and on. As such, they were not in good standing.

Two events drove home the importance of maintaining a good standing.

First, Matt had signed a very favorable contract with a supplier on behalf of the corporation in the winter of 2009. The supplier soon realized they could not make any money on the contract and asked their attorney to look into how to get out of the deal. Their attorney first went to the Secretary of State’s website to see if the corporation was in good standing and thus had the capacity to enter into the contract.

It was very easy for the supplier to void the contract. The corporation, by not being in good standing, was legally unable to sign the contract. State law was very clear on the matter. If you were not current you couldn’t act as a corporation. As well, in many states you cannot bring or defend a lawsuit if you’re not current. Matt had no leverage against the supplier and lost the contract.

Then, an even more serious consequence arose over a job Scott had performed. A brake job went horribly wrong resulting in significant injuries and damages. The attorney retained to bring an action for recovery against the corporation was quite pleased to learn the entity was not in good standing when the brakes were repaired.

When Scott learned of this he immediately attempted to bring the company current to avoid the personal liability. But it was too late. He had done the work when the corporation was not in good standing. The die was cast. This meant that Scott could be sued personally for the damages. By acting for a corporation not in good standing Scott was not protected by the entity and thus personally liable.

Scott and Matt learned the hard way the importance of keeping your corporation, LLC or LP current and in good standing.

It is very easy to see if someone’s entity is in good standing or not. Competitors, attorneys and even the curious can check the state’s online database for this information.

Don’t be the next victim of an innocent or unintentional failure to follow this important corporate formality. Make sure you are in good standing at all times so that the limited liability entity you set up continues to protect you in all your activities.