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What's the easiest way to incorporate a business?
I've been operating a sole proprietorship for the past few years and I think I am ready to incorporate my business so that I can separate my personal assets. What are the benefits of incorporating your business (vs. maintaining a SP), and what is the easiest way to go about doing it?
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2 Answers
The easiest way would probably be to form an LLC. They are inexpensive to setup (compared to a corporation or S-corp), yet help shield/separate a business's assets from your personal ones. Most likely you would be doing a single-member LLC (i.e., just yourself as the principle). If your business is large enough, it might make sense to do a Corporation, but I would recommend speaking with a business attorney; my guess is that the LLC is your best option.
Making this move will help to make the distinction between you and the business more evident, i.e., ABC, LLC versus ABC. For the move, I would recommend talking with a business attorney to make sure that you don't miss some important information when initially filing the LLC forms, and to talk with a CPA (if you don't already have one) to make sure that you properly separate files, etc., which will become important at tax time.
Bill,
It is great that you are at the point of incorporating your business. Now things can be a bit different from Sole Proprietorship. From the Finance/Economics prospective with an edge of the GAAP Principles in Accounting, I advise certain rules of thumb,which are:
If you decide to go Partnership(two or more partners)type, you pay taxes on personal rate (Form 1065 via Form 1040 Schedule K-1), If you go LLC type, taxes will be paid by the individual shareholders on personal rate. So, is the S-Corp type(combination of partnership & corporation, which allows up to 75 share-holders).while, LLC type corporation has no limit on the number of share-holders.
Remember, it all depends on how much risk you will take and be financially liable for, and how much a Hedge Firm/Investor/ or Commercial Bank will grant you when they underwrite your Sole Proprietorship Assets.
From, an underwriting/financial risk management institution prospective, which I have done for so many years, I would analyze your gained capital throughout the years of your business and I would make sure business is solvent which means it has to prove to me that it is financially sound and has had a consistent positive capital gain throughout the years of you owning the business; I examine carefully the depreciation of Intangible and Tangible Assets(goodwill, trade marks, copyrights, patents, real estate taxes, ), Amortization, Casualty Losses, etc. before I make a decision and advise my lending institution that we have a low risk financial dealer to expand your business.
This is just the beginning and it is probably the best stage, when you decided to go incorporated because you get to talk to great experts and shop for the most successful business advise of your company.
Keep me posted. I would not hesitate to give any advice to your company, so it can have a long life entity.
Regards,
Rozana K. Reffit
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