To incorporate or not to incorporate?

If you haven’t picked a business structure for your business yet, our guest blogger, Nellie Akalp of CorpNet has some advice.

By Nellie Akalp, CorpNet CEO & Founder

Mazes of cubicles, endless layers of bureaucracy, and corporate jargon…these are just some of the things that drove entrepreneurs (like myself) from the comforts of the corporate workplace. I enjoy coming to work in my workout clothes and flip flops, being able to yell across the office to ask a question rather than always resorting to texts and voicemail. And even though my title says CEO, we all wear enough hats that on any given day, I could just as easily be called a sales associate, customer service representative, or the office plant gardener.

In short, I understand the small business culture, and the desire to preserve this way of doing business. Yet, I cringe to think how often small business owners fail to take one of the most critical steps toward protecting their business and personal assets — the step to making their business official by incorporating or forming an LLC.

Over the years, I’ve had countless conversations with small business owners who argue they don’t want to incorporate because they want to stay small. I’ve heard statements like: I don’t need anything complicated, I’m just a one-person operation…or my customers like working with a small business, why would I want to change?

The assumption has been that adding an “Inc.” or “LLC” after your name means you need to trade in your flip flops for a power suit or add a cubicle to your home office. In reality though, there’s no reason that your business culture and identity need to be linked with your business’ legal formation. In other words, it is possible to take your legal considerations seriously, while still having fun, and staying ‘small’.

But, why incorporate in the first place? Specific advantages vary based on each business’ unique set of circumstances, but the general benefits typically fall in these categories:
• Protecting your personal assets: Once your business is incorporated (either by forming a Corporation, S-Corporation or an LLC), it exists as a separate legal entity, which means the corporation (and not you, the owner) is responsible for all of its debts and liabilities. Now I know, for most entrepreneurs, liability is farthest from your mind, unless of course, you’re a doctor, day care center operator… But what about those less ‘risky’ businesses? What if a computer technician accidentally wipes out a client’s hard drive during a basic upgrade? What if a copywriter unintentionally plagiarizes while working on a client’s website? Without incorporation, a dissatisfied customer or client would be able to sue you personally. In addition, you would be personally liable for any debt owed by your company. Incorporating will help protect you from the unexpected risks, so you can minimize the mental and financial impact on your personal life.

• Tax benefits: Federal income tax rates are generally lower for corporations than for individuals. And as a corporation, you may be entitled to additional deductions that are not available to you as an individual. In short, forming a corporation may actually help you lower your federal income taxes — and frankly, I have yet to meet a business owner (no matter the size) who isn’t concerned about taxes.

These two benefits are significant, and they have nothing to do with company culture. LLCs and Corporations (specifically S-Corps) can still be family-owned, family-run, local shops, and any other kind of small business. After incorporating for forming an LLC, you can still continue to offer the same great service or other personal touches that make your small business unique. In fact, keeping the small business mentality is exactly what helps you compete with those larger companies that have deep pockets and vast resources.

For example, time and time again, I’ve surprised and impressed clients by answering the phone when they call the office. Sounds pretty simple, I know. But in the days of labyrinthine phone systems and offshore call centers, the simple act of picking up the phone is far from common. And when clients recognize my name as the company CEO, or as the author of articles on the CorpNet website or industry blogs, it’s yet another form of differentiation from our larger counterparts. I get the enjoyment that comes from helping other entrepreneurs jump start their business and our clients get the benefit of talking to a live person — one who’s actually well-versed in their needs and doesn’t follow a script.

I certainly don’t intend to change this aspect of our business any time soon. Likewise, I hope that other entrepreneurs embrace their passions and those qualities that make their business unique. Of course, along the way each business owner should carefully consider his or her business structure, as the benefits of incorporation or forming an LLC should not be limited to large companies. Even if you’re a one-woman shop, incorporation can be a wise choice. And the process of incorporation is much easier and more affordable today than ever before. So take a little time upfront to weigh your options, and never forget that your corporation or LLC can still stay small.

Nellie Akalp is the CEO & Co-Founder of CorpNet, Incorporated, her second incorporation filing service company based on the simple philosophy of truth in business and her strong passion to assist small business owners and entrepreneurs in getting their business off the ground in a fast, reliable, and affordable manner.