Is it Time to Incorporate Your Business?

One of the questions I get a lot from small business owners is ‘Do I need to incorporate?’

This is a big decision and it has significant implications for your business. There are three primary reasons to incorporate your business:

1. Protecting your assets
2. Gaining tax advantages
3. Building credibility

If you are a small business owner already up and running, the principal advantage to incorporating immediately rather than waiting until the beginning of the New Year, is to minimize the risk to your personal assets. The longer you remain unincorporated, the longer you are exposing yourself to unwanted losses. 

We often encourage entrepreneurs who are considering incorporation at the end of the year to consider a delayed effective date. A delayed effective incorporation date accommodates business owners by allowing them to choose a date one to two months in the future for the official formation of a corporation or an LLC. This action enables business owners to manage paperwork in 2014, for example, and to ask for an effective date in January 2015.

There are a couple ways a delayed effective incorporation date can benefit small business owners: 

(1) Saving money. By delaying the date of incorporation, business owners can avoid being taxed and avoid filing an annual report in the current calendar year.

(2) Saving time. By filing before the end of the year, you can avoid getting your filing stuck in the backlog that may occur at the beginning of the year.

So if you were to begin the process with us now, many states will allow us to indicate an effective date of January 1, 2015 on the Articles.

If you wait until the beginning of January to begin, you may not get filed until mid-January or later. This option also has its benefits: you can save self-employment taxes by incorporating before the end of the year. However, a mid-year incorporation typically results in excessive time and expense to file two tax returns.