Timing, as much as anything else, can be crucial to a business’s success and its long-term viability.
New entrepreneurs may rely on market conditions or other economic indicators before making splashy decisions, or even launching a new product or service.
The timing for incorporating a business, however, depends on the current status of the enterprise, legal liability considerations and taxation.
Generally, a business is wise to incorporate before launching or at the end of a calendar year. Both scenarios produce benefits.
Incorporating before the doors open provides asset protection, allowing the company to hit the ground running.
For those interested in early incorporation, it’s important to remember that the application process can be time consuming. Once completed, incorporated businesses can apply for an Employer Identification Number for tax purposes and start up a business bank account – two indispensable tools that promote business development.
For those companies already conducting business, the conversion into a corporation creates a new structure and can build on the momentum already happening. Starting fresh and waiting for the year to end can be beneficial to businesses on various levels. It’ll mean business owners will only have to file one group of tax forms, instead of having overlap. Waiting for a fresh calendar year will also protect businesses for a whole filing year and, it’ll be one less thing the business will have to handle as it moves forward with its future development.
Another group of considerations revolves around legal liability. When a business incorporates, a business owner’s personal assets are protected should a lawsuit arise from day-to-day business operations. The formation of a corporation can protect some businesses more than others depending on the type of associated business risk. The bottom line is that a business owner with any concerns over possible liabilities may consider incorporating sooner rather than later.
Tax benefits may be another reason why a business could decide to move forward with incorporation. Businesses can significantly lower their tax burden through incorporation, but the benefits won’t be applied retroactively, which is yet another reason why some businesses prefer to hold off until a new year before making the move.
If your business is considering taking this important step toward incorporation, you may have additional questions about the process of this major decision. Please do not hesitate to contact us about our formation and advisory services that provide the guidance to help you move ahead.
The contents of this blog are intended to convey general information only and not to provide legal advice or opinions. 5 Star Accounting & Business Solutions, LLC is a Limited Liability Company that practices accounting and advisory services. The contents of this blog, and the posting and viewing of the information in this blog, should not be construed as, and should not be relied upon for legal advice in any particular circumstance or fact situation. Please contact an attorney for advice on specific legal issues.