Deciding to incorporate a small business is one of the most important decisions an entrepreneur faces. It can also be one of the most confusing. It’s essential to be thorough and understand how to protect your assets when embarking on the road to business ownership.
What are the benefits of incorporation? Most small business owners will have a simple answer: security and piece of mind. Essentially, when one decides to incorporate a business, the business operates as a separate entity from personal affairs. In other words, if a business has a lawsuit or judgment against it, all the individual’s assets would be protected.
A home, vehicle and personal accounts are safeguarded from being seized. The only assets potentially at risk would be those tied directly to a corporation. If by chance you have personal credit problems, the assets belonging to the business could not be touched to reconcile personal financial obligations. For many start-up entities, this alone is reason enough to incorporate. The loss of a business can be devastating, but far more damaging is the loss of one’s security. A business can always be rebuilt. However, it’s hard to do if you don’t have a place to live or a means to provide daily necessities.
Nobody likes to think about death or illness. Unfortunately, they are parts of life and it’s easier to plan for them before they happen. If your business is incorporated, it is relatively simple to craft a clear-cut action plan so your family has access to money during crucial times. Quite simply it frees everybody from worry and strife.
It is much easier to create goodwill among shareholders when questions are not left unanswered. One way to do this within a corporation is through a Buy/Sell Agreement. This ensures a smooth transfer of ownership and can precisely define division. In essence, it promotes confidence in a business among all involved.
It is often very difficult to determine the true value of a business that is not incorporated. This single barrier can really be a deal breaker when trying to sell a business. When you are incorporated there is a true and proper value as personal assets are not part of the equation. While a business owner may not be in the market to sell, it’s important to be aware of actual value. In the future it could give you more leverage or bargaining power.
Incorporating a business is relatively simple and in most cases it can be done without the help of an attorney. If you are unsure if incorporating is right for you, it is advisable to seek legal help. An accountant is also a resource to turn to when financial questions arise.
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