If you’ve been tossing around the idea of incorporating your business, there are some compelling reasons why you should.  In the eyes of the law, a corporation is a “legal person,” a legal entity which exists apart and separately from the individuals who created the corporation and operate the business.  Essentially, incorporating protects you (within limits) from corporate debts and obligations and personal liability.

Not to say incorporating is for every Los Angeles business, because it is not.  There are circumstances in which becoming a corporation can be detrimental, particularly for new businesses.

The tax advantages alone are reason enough for many businesses, particularly those that are sole proprietors, to incorporate.  According to statistics, Schedule C businesses (sole proprietors) are much more likely to be audited by the IRS than corporations.  Additionally, corporations generally enjoy lower tax rates as owners may distribute at least a portion of business profits as income not considered self-employment income.

Below are some additional advantages of incorporating:

• ŸCorporations can have an unlimited life, which means the corporation can continue on even after the owner/partners are deceased.  Additionally, corporations create tax benefits in some situations, and can easily transfer ownership by transferring securities.
• ŸConfidentiality is another advantage of incorporating for those who prefer privacy, and who would rather the general public did not know all of the business affairs.
• Credibility.  There is no doubt that having CORP or INC at the end of your company’s name creates an aura of trust.  While it’s really a simple matter of how people perceive things, it still matters.  Your business is more likely to flourish, because potential clients feel more confident and secure in dealing with a corporation.

While there aren’t many disadvantages of incorporating, there are a few:

• ŸAdded paperwork.  When you incorporate your business, you will be required to pay annual fees and file with the state periodically, therefore legal record-keeping means additional paperwork.
• ŸAdded expense.  Setting up a corporation is a bit more costly than just starting to work as a sole proprietor.
• Certain formalities must be observed by owners and directors; annual meetings are required as well.

Sometimes it’s difficult for an individual or partners to determine if it would be to their benefit to incorporate.  This is where an experienced Los Angeles business incorporation attorney can help.  At Spotora & Associates, we understand that the business entity you choose can have a huge impact on whether you succeed or fail.  Contact us today, and let us counsel you on the best business formation for your company.