Pros and Cons of Incorporation

The best way to structure a new business endeavor can be a complicated question that requires specialized legal knowledge beyond the scope of many entrepreneurs. A Monmouth County business lawyer can help you examine your long-term strategic goals and structure your new venture accordingly.

There are many different organizational structures to choose from, including corporations, limited liability companies, limited liability partnerships, partnerships and joint ventures. Each of these business forms has its own distinct advantages and disadvantages. Corporations are a common choice, but they are not right for every new business.

The single most advantageous aspect of the incorporation process is the legal separation it creates between you and your company. After it is fully incorporated, your business becomes a completely separate entity and you are no longer personally liable for any claims against the corporation. This can be a powerful tool for protecting your personal assets if the company goes bankrupt. Any creditors would have to collect from the entity, and the amount they can recover is limited to what the corporation can pay out. Incorporation also insulates you from being personally liable for any legal judgments against the corporation in personal injury or employment law actions.

While there are numerous advantages to incorporation, there are significant drawbacks as well. Corporations have to abide by strict formal reporting requirements, including the minutes for the board of directors meetings and accurate and updated reports of corporate decisions and financial records. They must also maintain the corporate bylaws and ensure that they correctly file all formal paperwork with the Secretary of State or other authorities. In addition, the tax consequences of incorporation can be far-reaching. A corporation must pay its own taxes on its income, and the shareholders, officers and directors must pay personal income taxes on this income as well when received as dividends. This “double taxation” can be a huge roadblock for smaller businesses.

The best way to determine if incorporation is right for your business is to contact an experienced Monmouth County business attorney to assess your goals and find a personalized business solution that is right for your entrepreneurial vision.