Reasons for incorporating
Picture this: You started a small landscaping business a few years ago as a sole proprietorship with three employees. Demand was so great for your services that you kept hiring more people and taking on debt to purchase more equipment, and the number of customers has soared. But lately you've started to wonder: What happens if business slows and you can't pay back all the debt? What if a disgruntled employee or unhappy customer sues you? As a sole proprietor you're personally liable for any bad debts and legal judgments against your business, meaning that your home and other personal assets are at risk.
When you incorporate, you're creating a completely separate legal entity, one that shoulders the liability burden you had been carrying yourself (or if you are a partnership, the burden you and the other partners were carrying).
Forming a corporation also allows you to:
- Reward and retain key staff by giving workers a piece of the business.
- Have more options for raising funds. Instead of going into more debt, you can attract equity investors.
- Shift tax liability away from you to the corporate entity.