When many business owners start a new company, they set their business up as a sole proprietorship. This is often seen as one of the easiest and fastest ways, but what are you really getting out of a sole proprietorship? There are a great deal of advantages to incorporating or becoming an LLC that you may not have considered. Here’s why you should incorporate your business.
It protects your personal assets
If your business is a sole proprietorship, do you know what happens if someone sues you? If your business were to be sued and win, they would not only be able to take funds from your business, but that loss would dip into your personal assets as well. This means assets including your house, vehicles, savings, etc. are all at risk. However, if you incorporate your business, it allows you to separate those two completely. Now, if someone were to come after your business, they would only be able to sue the business. Your personal assets would no longer be on the line.
Helps you establish business credit
Did you know there’s a difference between personal credit and business credit? If you ever intend to take out a business loan, get a business credit card, or use an investor, your life will be a lot easier if you choose to incorporate your business first. By incorporating, it gives you and others a clear delineation between your personal finances and business finances. That separation also helps your business begin its own credit history rather than being attached to your personal credit history.
Raise capital easier
In addition to helping you establish credit for future opportunities, when you incorporate your business, your ability to raise capital will increase. With incorporating, comes the option to issue shares of company stock to potential investors that you otherwise wouldn’t have access to as a sole proprietorship. Also, banks typically prefer to lend to an incorporated company over sole proprietorship as well. So if you intend to seek any kind of outside funding, raising capital will be worlds easier if you incorporate.
Builds credibility with customers and community
Say you did business with a company and they needed to give you a check. You look at that check and see that it’s the CEO’s personal checks and with his personal information. How professional do you think that company is now? When you incorporate your business, you are proving your credibility and professionalism as a business entity. You are showing that you are serious about running a reputable company.
It may feel like just another thing to add on your never ending to-do list, but taking the time to incorporate your business will help you so much in the long run. Weigh your options, decide on the right time, and take the necessary steps to become the type of business you want to be. It may take some time now, but you’ll be glad you did it later.