Why Incorporating Your Small Business is a Good Idea

If you own your own business or have thought about starting one, you are in good company. According to the U.S. Small Business Administration, there are 28.8 million small businesses in the United States. Small businesses (less than 500 employees) employ 56.8 million Americans and account for a whopping 99.7% of all U.S. businesses. The success of small businesses is a key component to a thriving economy.

If, however, you do not run your business out of a corporate entity, you are in the minority. In a 2016 report, the National Small Business Administration found that 87% of all small businesses use some type of corporate entity. This means that almost 4 million small businesses are not operated through a corporate entity. Why do so many small business owners choose not to incorporate? Often, we hear clients say their business is too small, that it costs too much to organize or incorporate, or that they don’t really see any benefit to forming a legal entity.

No matter what kind of business owner you are or how big or small your business is, forming a business entity is usually the right choice. Perhaps the most important advantage a business entity provides is personal asset protection. Do you own a house, car, or bank account? If you do, then running your business without a business entity can subject these and other personal assets to substantial risks from your business creditors. If you are sued and judgment is entered against you, you could lose these and other personal assets, which usually forces many small business owners into bankruptcy. Forming a business entity provides protection, as long as you follow corporate formalities, for your personal assets – such as your life savings and the college fund you’ve spent years saving for your children.  Your personal assets will be protected, even in the unfortunate event that your business is sued.

Aside from personal asset protection, forming a business entity has several other advantages as well, which include tax flexibility, deductible expenses, perpetual existence, and instant credibility. Many of our clients have found that the money they save pays for the cost of forming a business entity several times over.  With some of the tax changes that are currently being proposed by the current administration, those tax savings could be substantial.

Give MTSE a call and ask to speak to one of our corporate attorneys. We are happy to work with you to determine what business entity suits you best. Forming a business entity is not a cookie-cutter process, and we will work closely with you to ensure that your business is structured in a way that keeps it profitable while helping to protect your personal assets. Spending a little money now could save you many times that amount in the future!

Authored by: Seth Slayden and Ken Siemens