For people who own a small business, deciding whether or not to incorporate it is a big thing. Small businesses usually start off as being sole proprietorships and as they grow bigger, they get incorporated. If you are a small business owner, learning the advantages and disadvantages of small business incorporating will help you decide what to do.

The Advantages:

Incorporating your business, or in other words, starting an LLC, will mean that your financial obligation becomes limited. This can be a big advantage. This is because when you hold sole proprietorship, the whole liability of the business lies squarely on your shoulders. When you incorporate it, your liability becomes limited though your right to it remains quite the same.

The next advantage is, in case of a sole proprietorship business, if the company incurs any debt, you as the owner, will have to put in all your personal property, including your house and car, in order to repay it. Starting an LLC will make you a stockholder of the company and you will be under no obligation to put up your personal property to repay the debt of your company. This of course works only if you haven’t given a guarantee otherwise.

Another huge advantage of small business incorporating is that it becomes much easier to raise capital. No one is going to come forward and put money in a sole proprietorship business but starting an LLC will see a lot of people do so. Getting more stockholders would mean more money added to the company’s capital and this can be utilized to expand the company. In fact, after the LLC grows further, you can even think of turning it into a corporation which would mean that your company could be selling its shares in the market. Also, if you can get the services of good local accountants, you can also get many tax benefits for the LLC or corporation. Profit splitting and potential tax deferral are just a few of them.

The Disadvantages:

If you incorporate your small business, you will have to file two separate tax returns, one for the company and one for yourself. This can be irritating if you don’t enjoy filing taxes. Once you incorporate, and if the business grows, you will find that the cost of maintaining it has also gone up quite a bit. Paying employees such as local accountants, building rent and other maintenance charges will see you using quite a bit of the profit. Another disadvantage of having a corporation is to have lots of paperwork to do. Maintaining a minute book, tax returns and reports should require the services of a separate employee.

As you can see, small business incorporating has its pro’s and con’s. But it is a fact agreed upon by all big businessmen that, incorporating a small business is a way of giving it a limitless new life and the chance to grow. The onus lies on you.