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There comes a point in time when every small business person 
contemplates on whether to incorporate their business or not. A 
lot of times small businesses start out sole proprietorships, 
and then become incorporated as the business expands and 
develops. Small business incorporating can be a difficult 
decision, and with this article you’ll gain a little bit of 
knowledge on the advantages and disadvantages. 

There are many advantages to incorporating your small business, 
but limited liability is one of the biggest advantages. When 
you have sole proprietorship to the company all the liability of 
the company is on the owner. When incorporating the business, 
your only liability is to however much you invest in the company. 

With sole proprietorship, all of your personal belongings, such 
as car and home, can be turned over to help pay the debt of the 
business. As a shareholder in the business, you have no 
responsibility whatsoever for the debts of the business, that is 
of course unless you give a guarantee. 

Another advantage to incorporating a small business is the 
ability to raise money so much easier. With the ability to 
raise money much easier, this increases the odds of the 
corporation growing and expanding. Yes, you’re saying any sole 
proprietorship can borrow money and incur debt like any 
corporation. However, with a corporation you can sell shares 
and raise equity capital, which is a big advantage in that you 
generally don’t have to repay equity capital and it has no 
interest. 

There are many tax advantages with becoming a corporation that 
you can take a look at as well. Some of these advantages 
include income splitting, potential tax deferral and more. 
Along with the reasons above, a corporation can have an 
unlimited life. The life of a corporation is not dependent on 
particular individuals, but the company as a whole. With this, 
the company has the opportunity of lasting forever just as long 
merges with another company or goes bankrupt. 

Now that I’ve buttered up the idea of incorporating your small 
business, let’s take a look at some of the possible negatives. 

As you incorporate your small business, there now will be two 
tax returns to file each year, one for your personal income and 
one for the corporation. This may not be a huge deal, but 
unlike a sole proprietorship a corporation cannot deduct its 
losses from the personal income of the owner. Plus, having 
another tax return is the last thing another business owner 
wants to deal with. 

As a corporation is much larger and more complex then a small 
business, therefore the cost to create one is much higher. Just 
to set up the corporation will cost a lot more, then you have to 
tack on the increased maintenance fees, accounting fees, and 
more. 

As with everything else, a larger business means more paperwork 
that must be taken care of. Corporations must keep a minute 
book, which contains the corporate bylaws and minutes from 
corporate meetings. Reports and tax returns must be completed 
neatly and in a timely fashion. All of the business bank 
accounts and records have to be kept separate from personal 
accounts and assets. That may sound like a load, but that is 
just the start of the increased paperwork that comes with the 
territory of incorporating your small business. 

While there are many advantages and disadvantages to 
incorporating your small business, the decision ultimately goes 
to you. It is a decision that could make or break your 
business, therefore much more research is recommended. However, 
small business incorporating should be a thing that suites you 
and others associated with you best. 

by: Jeff Schuman

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