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Forming a Business Structure – Is Incorporation Right for You?

Credit Union Lending: A Solution to Small-Business Capital Crunch?Business incorporation has become synonymous with responsible business ownership. Yet, so many misconceptions and rumors exist about the benefits of business incorporation. So it’s no wonder that even the savviest entrepreneurs are at a loss as to whether incorporation is right for them, what it will cost, and where to start.

Business incorporation (which, by the way, is an umbrella term for a number of business structure options) may be right for some business owners, but it isn’t for all. So it’s worth doing some stepping back and ascertaining whether incorporation is right for you.

Here are some points to consider:

What is Business Incorporation?

As mentioned above, business incorporation is a loose umbrella term that covers a variety of options for legally structuring your business.  These options include becoming a limited liability company (LLC), corporation, S-corporation, non-profit 501(c)(3), cooperative, and so on.

Whatever business structure you choose needn’t be set in stone, and can be changed as your business matures. For example, many small business owners start out as sole proprietorships [1] or partnerships [2] with formal incorporation taking place at a later date.

Of the many business entities [3] that owners consider, LLCs and Subchapter S Corporations (S-Corps) are two of the most popular. Read “Should My Company be an LLC, an S-Corp or Both? [4] [4] to determine which features are most important to you and your company.

The Benefits of Incorporation

Here are some of the benefits you can realize if you decide to incorporate your business:

The Disadvantages of Incorporation

Some of the disadvantages of incorporation, particularly for the small business owner, include:

Is Incorporation Right for My Business?

At the end of the day, choosing the right business structure for your small business comes down to several factors such as your risk of liability, your tax obligations, business objectives, and so on.

Because the needs of every business are different, and the law varies from state-to-state, it’s worth an hour or two with a knowledgeable attorney to investigate all of the issues that will affect your decision.

Getting Started with the Process of Incorporation

All business incorporations must be filed with your [7]state government. [7] Whether you choose to pursue this through an attorney or choose an online legal service is up to you. But try to get referrals and recommendations from other businesses that have been through the process.

If you operate in multiple states, read “Which State is best for My Small Business? [8]” to determine which state is the friendliest to corporations and incorporate in that state.

Additional Resources

Business.gov Incorporation Guide [3] – This Web guide draws information from across government to provide small business owners with vital information and resources about what incorporation is and how it can work for your business.

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