Questions & Answers

I’m in business for myself and it’s going pretty well. Why should I incorporate now?

There are three main advantages to incorporating. First, if your business is incorporated, it separates your personal assets from your business liabilities. For example, if you are a sole proprietor or partnership and the economy goes south and your business finds itself in a place where it can no longer make it, you are responsible for all of the debts and obligation of contract. If your business decides to get relief under the bankruptcy laws, you must file a petition for yourself as an individual and also for your business. If the business is incorporated you would not have to file bankruptcy, and you would not be responsible for any of the debts, unless you personally guaranteed a debt. Second, if your business is incorporated your tax burdens tend to be lighter personally. This is because the Internal Revenue Code gives subtle but substantial advantages to shareholders, as opposed to employees or sole owners. You want to have more money in your pocket, don’t you? Third, a corporation can be set up so that it automatically thrives on its own business, so that it runs itself with more and more efficiently. This frees you up to make money without having to work as hard, and to do the things you would like to be doing, like going skiing with your family.

How is it that a corporation is more apt to run itself efficiently as compared to self-employment or sole proprietorship?

People tend to care more about the success or failure of a business when they have an actual interest. Since you are in business for yourself, you know that you need no prodding or lecturing or performance review to get you to do your best. Wouldn’t it be terrific if all of your employees worked at it with the same heart and determination as you do? When people own something they tend to care a great deal about whether it is successful or not. A corporation can enter shareholder agreements with its employees and contractors allowing them to own a small piece of the company. Shareholder agreements can provide powerful stimulus and incentives, so that the employees and contractors strive for its success without having to be prodded. It’s a matter of taking care of oneself. An employee or a contractor who owns stock and gets paid a dividend will do everything in their power to insure that this year is a better one than last year.

Since I’m going to incorporate my business, why not go through one of those services? They file your papers for $300, and give you a nice notebook with your company name on it and pre-printed share certificates.

If you were building your own dream house, you probably wouldn’t hire a plumber for the job. Although you would need a plumber in order to do it right, your interests would best be served by hiring an architect who can provide you with a plan that is legally sound, creatively connected to your ambitions, and results in meeting or exceeding your expectations. If you care about whether your company succeeds or fails you will invest an adequate sum toward its infrastructure. Approximately 98% of those $300 companies don’t make it. Those who are serious about making it in business will put a little extra toward the things that count most. The cost is a one-time expense. And once the start up is complete you never have to do it again. If you consider the advantages, spread over the next ten years or so, it’s astounding how little it really cost you to do it right. Do it right; make it count!

Are there any other reasons I should use an attorney for my incorporation?

Each year we start up a number of corporations, but we also get a fair number of people each year that started their corporations through an incorporation service, and failed to follow through with a startup plan. Somewhere down the line when a creditor, a client, or a personal injury plaintiff sues a company, the founders discover that there is a little thing called an “alter ego corporation” and that is what their company is. When the company fails to take care of business this way, the shareholders may still be held personally liable for the company’s liabilities. In this regard, the shareholders, who thought they were protected, are liable just like sole proprietors. A properly formed corporation, on the other hand, is like a fortress with unassailable walls.

Disclaimer:

Nothing contained in this web site is intended as legal advice. Nothing contained in this web page is intended to create a professional relationship between you and an attorney. If you would like legal advice about your case, you should contact an attorney at Hertz Law Offices by telephone or email today. This web site is not intended to solicit clients for matters outside of the state of California.