You built your business in Chicago from the ground up and you have seen considerable success throughout the years. A once small enterprise now hires many people, has a solid and significant client base and has caught the interests of investors. At this point, you may decide it is time to expand your business through incorporation. The following are some advantages and disadvantages of incorporating your business.
Advantages of incorporating
When we think of a standard corporation, we are likely thinking of a “C corp.” C corps have the advantage of being a separate legal entity from its shareholders and officers. This means that the corporation itself makes a profit, pays taxes and is liable for the debts of the corporation and any lawsuits filed against the corporation. Those who want to absolve themselves of personal liability when it comes to business actions will likely find a C corp to be an attractive option.
In addition, C corps can raise capital by selling stock. This attracts investors and potential employees. Also, if a shareholder chooses to sell their ownership interest in the company or an officer resigns, the C corp will continue running without having to go through the process of dissolving and reforming altogether.
Disadvantages of incorporating
While a C corp provides a great deal of protection to shareholders and officers, this protection comes at a cost. C corps must follow Illinois law on record-keeping and must report their activities to the state. C corps must also have operational processes in place. In addition, C corps face double taxation. They are taxed on profits they make and again when they pay dividends to shareholders.
In addition, there is a concept known as “piercing the corporate veil” in which the C corp’s shareholders or officers face personal liability for the actions or debts of the C corp under limited circumstances. Piercing the corporate veil is generally reserved for acts of serious misconduct.
Is incorporating right for you?
If your business has grown and you wish to raise funds and “go public” it may be time to incorporate. Ultimately, you know your business best. If the time is right to incorporate, you will want to consider all the advantages and disadvantages of incorporation so you can make a sound decision that is in the best interest of you and your business.