There’s no hard and fast rule on when to incorporate, but here are four reasons you might consider incorporating your business.
- Liability protection. A corporation is a separate person under the law. If somebody sues the company that person is suing the corporation, not you, and your personal assets are protected.
- Taxes. Corporate tax is a lot lower than personal tax. If the business is generating more money than you need to support your lifestyle, you can leave that extra money in the corporation and save on personal tax you would have paid otherwise. There are also other tax advantages, like the small business deduction (which can bring that corporate tax rate down even further) and the lifetime capital gains exemption (which can save you a ton of tax when you sell the business).
- Keeping your business and personal lives separate. So if something were to happen to you, the corporation actually would continue to exist, and it would continue on it can also make it easier to bring in business partners or to get financing from the banks.
- Professional appearance. It looks much more professional to give customers an invoice from “ABC Design Corporation” instead of John Smith.