7 Reasons Why you Should Form a Business

Some entrepreneurs question the necessity of creating a company for their business, or simply delay its formation until they have proven they have a stable revenue stream. Although this may sound reasonable, legal experts strongly advice to form a business as soon as possible.
Here you have 7 reasons why you should form a US business, regardless of its size and type of business. That is, whether it's a corporation or a Limited Liability Company (LLC).

1. Personal Asset Protection - Limited Liability

Forming either a corporation or a LLC allows the business owner to separate and protect her/his personal assets in case of a lawsuit or in case of claims against the business entity. In an effectively managed and structured company, owners should have limited liability for outstanding business debts and obligations. This remains as one of the leading benefits to creating a business.

2. More Credibility

As a close second to personal asset protection, a major benefit of incorporating your business is the stamp of approval adding an "Inc." or "LLC" after your business name gives. This distinction affords your business with instant credibility and authority associated with owning an incorporated company. Potential consumers, vendors and partners tend to prefer to do business with an legally established company and will look overlook those who are not.

3. Brand Protection

In most states, other businesses are not entitled to file your exact corporate or LLC name in the same state. From a branding standpoint, this is great news. It not only helps protect your company's reputation from being diminished by or confused with another company that happens to have a similar sounding name. It also strengthens your businesses in terms of brand identity and marketing efforts.

4. Perpetual Existence

Corporations and LLCs continue to exist throughout ownership or management changes within your business. Sole proprietorships and partnerships simply end if an owner dies or leaves the business. Forming a corporation ensures that your business' legacy can be preserved, as well as continue to provide employment and services for clients should any changes in ownership take place.

5. Tax Flexibility and Benefits

There are several tax advantages and benefits of incorporating a small business. While profit and loss typically "pass-through" an LLC and get reported on the personal income tax returns of owners, an LLC can also elect to be taxed as a corporation. Likewise, a corporation can avoid double taxation of corporate profits and dividends by electing Subchapter S tax status and thus becoming an S Corporation. A word of warning for foreigners, an S corporation requires all

its owners (stakeholders) to be US citizens. 

6. Deductible Expenses

Corporations and LLCs may deduct normal business expenses, including salaries, before they allocate income to owners. This means that the money you put towards growing your business can be deducted from your business income in determining your actual taxable income.

7. Investable

Investors that invest money into a Corporation or LLC in exchange for equity have legal guarantees that they are the rightful owners of that equity. Without a company as an investment vehicle this would not be possible. In addition, investors typically prefer a Corporation over a LLC since it offers them more flexibility when it comes to transferring/selling their shares and provides them with many guarantees through an extensive and well-matured body of corporate law.

A Note for Foreigners

If you are a US foreigner you may be wondering if you should form a US business, or a company in your homeland. In this post you have 5 additional reasons why you should incorporate in the US, instead of in your country.

The Online Course

Due to the large number of people interested about this subject, I have created an online course that teaches you how to easily create (and dissolve) a US business from the comfort of your home, be it in the US or elsewhere, avoiding expensive legal fees.

The course contains 37 lectures with videos, instructions, quizzes and checklists to help you navigate through the process of setting up your US company, avoiding common pitfalls inexperienced entrepreneurs usually fall into. You will also find templates for all the necessary legal documents, which you can freely download and use right away.

As a special thank to my blog readers, I've created 100 coupons to access this course with a 50% discount. Click on the link below to redeem your discount code before I run out of invitations!

For an in-depth understanding of how to form your business in the US I recommend you this book by Constance E. Bagley.

Enjoy creating your US company!