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Whether you’ve been running your home-based business for a while or are just starting out, you may be wondering about incorporating your business. That is, forming an official legal business entity, such as a limited liability company (LLC), to help to project your business and personal assets. Even if you work alone and intend to keep your business small, there are still advantages to incorporating.
Read on to learn more about how you can benefit from the protections and advantages provided by owning an LLC without spending a lot of money.
If you are running a business as a sole proprietor (i.e. as yourself), you can be held personally liable in a lawsuit and, as a result, your personal assets, like your bank account or your home, may be at risk. Forming an LLC separates you from your business, which can provide liability protection in the event that you are sued.
Sometimes having a business entity along with a good business plan can help your company acquire funding. Being registered as an official business entity can give your company a sense of legitimacy, and it demonstrates to your investors that there is a clear division between your personal and business finances. Forming an LLC or corporation can also make you eligible for new business opportunities, such as government or nonprofit partnerships, where incorporation is usually a prerequisite.
Since your incorporated business is a separate entity from you, you can transfer it to another person—for instance, if you want to sell the company or pass it down to your heirs. It is often more difficult to sell or transfer a sole proprietorship than a business entity.
When you are running a home business, often the business name is your name. When you form a legal entity, you have the opportunity to create an official business name. You can even take advantage of trademark protection as you establish your brand.
As an accounting best practice, it is generally a good idea to keep your business and personal expenses and income separate. After you legally register your company, you can open financial accounts in the name of your business. This can make it easier to manage your business expenses, do your taxes, and track revenue.
Once you incorporate, your business could also benefit from tax savings depending on the entity type. It is important to talk to a tax lawyer or CPA to learn what’s right for you.
Imagine an unhappy customer showing up at your house or important business mail getting lost by being mixed in with your family mail. When you incorporate, you can hire a registered agent. A registered agent can accept your mail for you, including time-sensitive documents, such as summons, lawsuit information, or official state documents.
In some states, a registered agent is required, and without one, you could be subject to fines and other penalties.
Forming a business entity is easy. With online incorporation services, you normally just answer a few questions about your business and the paperwork is filed on your behalf. There are many benefits to incorporating your home-based business. It is not expensive and it offers legal protections that you cannot take advantage of if you are a sole proprietor running a business using your own name. Current tax law changes also offer more tax incentives than previous years, making it an optimal time to finally make your home business official.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.