When starting a company, you will need to decide what type of business organization you wish to operate. You have a variety of different choices regarding the type of business that you will run. For example, you can be a sole proprietor, which is the simplest type of business organization that has virtually no initial paperwork requirements. You could also form a partnership if you want to work with others, or consider a limited liability company (LLC).
For many organizations, however, it makes sense to incorporate a new business. While there are initial costs and paperwork requirements associated with incorporating, forming a corporation will also allow you to protect your personal financial situation and will help to ensure that you have the most flexibility when it comes to tax treatment. An experienced San Jose business lawyer at the Law Offices of Mike Ross will help you to determine if you should incorporate a new business and will assist you in the process of filing corporate paperwork. Call today to learn more.
Why You Should Incorporate a New Business
You may wish to incorporate a new business if you want to limit your financial liability to the amount that you invest in the company. For most types of business such as a sole proprietorship or a partnership, you and your business are considered to be the same legal entity. Your business does not have a separate identity and you are personally liable if the business goes into debt or if the business is the defendant in a lawsuit and has a judgment entered against it. If the company goes bankrupt, this means that you personally will go bankrupt. Creditors could also come after your home or other personal assets to try to satisfy judgments against the company. This is a big risk, especially if you have significant assets.
When you incorporate, you create a separate legal person and the business is distinct from you in the eyes of the law. As long as you respect corporate formalities, which means treating the business as a legitimate corporation, then you will not lose more money than you invested to start the business. The liability protections that you get when you incorporate a new business are one of the most important reasons why many people form a corporation for their company.
Another benefit associated with incorporating a new business is that you can structure your taxes in the way that works best for you. If you form a C-corporation, then the business will pay taxes on profits and declare losses and individual owners will also be taxed on profits and losses. However, if you form an S-corporation, then the income and losses pass through to your personal tax return. However, with an S-corporation, you may take some of your corporate income as distributions, which means you do not have to pay Social Security and certain other taxes on a portion of your income. This can result in significant tax savings.
An experienced San Jose business lawyer at the Law Offices of Mike Ross can help you to decide if it makes sense to incorporate a new business in order to benefit from both the liability protections and the tax treatment of your corporation. Call today to schedule a consultation and learn more.