In this podcast, SCORE mentors chat with Nellie Akalp, Founder and CEO of CorpNet.com, an online legal document filing service that helps entrepreneurs start, grow, and maintain their business. Nellie is also a small business advocate, speaker, and author. Her first business was acquired by Intuit in 2005 and she contributes her expert advice to Forbes, Entrepreneur, Huffington Post, small business expos and has appeared as a guest on the Fox Small Business Network. Hear her advice on incorporating your small business.
Why is incorporating a business important?
For most new entrepreneurs the process of incorporating or forming an LLC is really an unfamiliar road to navigate. The bottom line is incorporating your business is important for several reasons. Liability personal asset protection is the main reason because without incorporation your own personal savings and property are at risk to settle any debts of the business. God forbid, the business should get sued or wrong somebody. In addition to liability and personal asset protection there are tax benefits. Liability protection is the key benefit for incorporating or forming an LLC but in some cases forming a corporation can help you lower your overall tax burden. Corporations and LLCs often qualify for additional tax benefits and deductions that aren't normally available to individuals.
Other benefits include added layer of privacy. When you incorporate or form an LLC, there's an added layer of privacy. In many cases, a registered agent, which a corporation or LLC must designate for the corporation goes on record leaving your home or business address private so that nobody can get access to you. Last but not least, venture capital funding. A corporation offers a known stock structure with really transferable shares so in most cases, when you incorporate you can have, as a corporation or an LLC it could be easier to access a line of business credit or seek venture capital funding. That's really in a nutshell the benefits of why you need to incorporate and why incorporation is so important to a business.
At some point, once you've incorporated does it make sense to either change the structure or let me ask it backwards. Does it pay to start as an LLC and then look at a corporate structure if you're thinking of going public or raising funds?
That's a great question. Often times as a small business owner the two most frequently-used business structures are either the S corporation or the limited liability company. In answer to your question, you can always convert from one structure to another structure, such as if you're an S-Corp and you want to convert to a C-Corporation, which is the most attractive type of business structure. If you have an exit plan or if you want to seek venture capital funding down the line, or vice versa; if you're a corporation and want to convert to an LLC you can do that. Again, it really depends on the nature of your business and what stage of the business you're at, what stage of growth you're at. In answer to your question, again, at any given point in time, and as long as your state offers this filing, you can always convert from one business structure to another.
There's more. Click play on the video above to listen to the full podcast or download the transcript.