Choosing the right legal structure for your business is an important step. While running a sole proprietorship or an LLC may look easier, for many New York City businesses incorporating will be the right choice.
There are three main reasons why incorporating is so advantageous.
Protection from Liability
When you set up a corporation that company’s debts belong to the company, and not to you. That means if your corporation fails creditors won’t be able to come after your personal assets. Incorporating protects your home, your retirement accounts, and your other valuables.
This becomes especially helpful in the event that your corporation gets sued, as few individuals can afford to pay hefty lawsuit settlement amounts. Ideally your company would have enough insurance to cover any problems, but you still want the money to come out of your company’s account, and not yours.
Keep in mind that incorporation alone will not be enough. You must also take steps to avoid “piercing the corporate veil.” That means you’ll never pay for personal expenses out of your company account. Creditors can also pierce the corporate veil if the company’s actions were fraudulent, or wrongful, or if creditors suffered an unjust cost. Consult with your corporate attorney to determine what steps you can take to keep the corporate veil in tact.
Ease of Succession Planning
Incorporating establishes perpetual existence and transfer of ownership. This means you can die but your business will live on. The other owners will seamlessly continue to own the corporation and there will be no disruption.
You can also gift, transfer, or bequeath your own ownership interest to a heir, something you’ll likely wish to do if business goes well.
This does not mean that your business will not need to do any other succession planning, especially if you hold a key roll within the corporation. It does mean that succession planning becomes far easier overall.
Corporations get a wide variety of tax deductions, including wages, insurance, retirement plans, business travel, and entertainment expenses.
Your corporation will pay its own taxes.
You can then have it write you a check every month for a salary, and pay your own taxes just like a W2 employee.
Don’t be intimidated!
One of the reasons business owners shy away from incorporating is the fear that they’ll fail to meet one of the legal requirements for doing so, or won’t be able to afford the costs of working with an attorney to get their corporate documents written and filed correctly.
Fortunately, hiring an attorney to assist in your corporate set-up is more affordable than you think. Furthermore, you can extract additional value from the relationship by setting up your boilerplate contracts and doing a liability risk assessment at the same time.
Contact our office to get started today.
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Meet Mr. Richman
SCOTT B. RICHMAN, ESQ.
Mr. Richman is the Managing Member and Founder of Richman Law Firm PLLC. In his role as Managing Member, Mr. Richman oversees the day-to-day operations of the firm and handles the litigation of the most complex legal matters across a vast array of practice areas and disciplines.