When should I incorporate?

Question

I have a home based business and my income is increasing, when should I incorporate?

Answer 1

She is right in noting liability as a major reason to incorporate. If you are not incorporated, then your business is considered a sole proprietorship. If a lawsuit ever came against the business, then your personal assets (home, car, etc.) would be fair game for awarded damages. Forming an LLC or limited partnership would give you limited liability and only the assets that are contributed to the partnership would be at stake. Your personal assets would not be at risk unless you were a general partner. You would also not be personally liable for partnership/LLC debt that you have not personally guaranteed. Another reason to form a Partnership/LLC/SCorp/CCorp would be to admit new owners to the business. If an outside investor wanted to buy an ownership interest in your business your would need to form one of these companies. It is a good idea to pay an attorney to form an entity like this although it may not necessarily be required. There are also complex differences between the tax treatment of each type of entity that I will not go into, but that you should be informed before deciding on an entity type.

Also, be sure to understand that incorporate is a term used to describe the formation of an S-Corp or a C-Corp. You might also conclude that a partnership (General, Limited, or LLC) may be the preferable entity type. These entities are simply formed (preferably by a written operating agreement).

Answer 2

There are many reasons you may or may not want to incorporate. Liability is the main reason. If you are running a home based business you may not want to incorporate. If you are concerned about liabiltity, than a LLC is probably the way to go. You may also want to form an S-corp for some tax benefits. But there are so many factors to consider. You really need to contact a professional if you haven't already. There are many tax consequences when you incorporate.

Answer 3

You should incorporate or form an LLC if

1. You have employees.
2. A client/customer insists on it (usually out of fear of you being classified as an employee. This doesn't seem to apply in your case.)
3. You want to have co-owners (partners, shareholders, etc.)

There are other reasons, but I don't type all day for free.

Answer 4

no reason to do it. You do not get more asset protection unless you have multiple partners in an LLC. Tax treatment is pretty similar between an llc and a sole propreitership

Answer 5

I was in a similar boat as you. Form a LLC, and elect pass-through (like an S-Corp). If you only have a few employees, or none, then a LLC is the best way to go.

Answer 6

you should do it now