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Rancho Cucamonga business owners discover the reasons for and benefits of company incorporation

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Whyte & Associates, Inc. in Rancho Cucamonga explains the reasons for and benefits of company incorporation for small business owners.

When starting a business, many small business owners start as small proprietorships meaning the owner and business are one and the same. Changing to a corporation or LLC brings a number of advantages for individuals. Whyte & Associates, Inc. in Rancho Cucamonga explains the reasons for and benefits of company incorporation for small business owners.

A business owner has many decisions to make in developing and forming his/her business. Deciding on the exact legal structure is one of the most important choices to make. Individuals often launch as sole proprietorships leaving no legal separation between themselves and their businesses. Some avoid incorporating because they do not understand the process or assume it is challenging or unnecessary. Although it is never required to incorporate, structuring a business as a corporation or a Limited Liability Company (LLC) provides a company with benefits that impact personal liability, credibility, and taxes.

Benefits of company incorporation

Incorporating your business comes with advantages for the owner personally and for the company itself. Reasons for incorporation include the following:
  • Personal asset protection
  • Credibility and name protection
  • Access to funding
  • Continued existence
  • Tax benefits
An entrepreneur’s personal assets are protected. By incorporating a business, owners essentially build a wall protecting themselves and shareholders from personal liability for the debts or obligations of the company. In corporations, business owners can separate and protect their personal assets. With a properly structured corporation, owners have limited liability for business debts or obligations. On the other hand, a sole proprietor or partner is liable to creditors for debts. In a sole proprietorship, if the business struggles, your personal assets are fair game.
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Protect your company’s name with incorporation. For some businesses, the simple act of adding “Inc.” or “LLC” at the end of the business name gives additional legitimacy, credibility, and authority. Consumers and other vendors often prefer doing business with an incorporated company. In some cases, companies are more comfortable outsourcing to incorporated businesses rather than to sole proprietors. Incorporating a business may also help in brand building and marketing as it prevents other companies from using your company name.

If your company needs funding, a formal business structure is essential. When a third party wants to invest in a business, an organized entity must be set up to accept the investment. Banks and lenders are more hesitant to provide funding to sole proprietors because there is a higher risk of repayment.

Corporations and LLCs can continue to exist regardless of changes in management or ownership. In sole proprietorships or partnerships, the business ends if an owner passes away or leaves the business. Corporations are viewed as more stable forms of business with longer term planning and security.

Corporations and LLCs offer attractive tax options for small business owners. Generally, tax rates are lower for corporations than individuals. Benefits and deductions are available to each that are not available to individuals. Incorporation is often a way to lower self-employment taxes. It is also a way to structure the business to provide liability protection so profits and losses can pass through personal tax returns. In addition, some expenses the owner or employee incurs can be written off as business expenses. It is best to speak with a business or tax advisor about your unique tax situation.

Professional business advice

Image of a lady use a Tab for her business matter Many businesses throughout the United States are sole proprietorships and operate successfully without incorporating. However, if you need to protect your personal assets or want to seek financing, company incorporation may be beneficial. Corporations and LLCs are popular methods of incorporation for small businesses with each offering advantages such as liability protection and tax benefits. There are significant differences between the two. Let the business professionals at Whyte & Associates, Inc. help you weigh your options to determine the best choice for your situation and maximize your financial and operational success.

At Whyte & Associates, Inc., our team of business professionals provides small business owners with advice regarding the challenges they may face. During the life of a business, there are opportunities and challenges. We specialize in business services. Our experience and expertise allow us to advise and help small and large businesses through the ups, downs, and changes.

If you have business questions or are considering incorporation, contact Whyte & Associates, Inc. in Rancho Cucamonga today. Call (909) 575-0080.