For many people starting a business, the decision of how to organize is relatively simple. For others, the answer is less clear, especially for people who are self-employed, like consultants and freelancers. Should someone setting up a fairly simple business with no employees incorporate?
It may not seem like it, but incorporating a solo business may be worth your time in the long run, as the Small Business Administration notes on its website.
One advantage of forming a corporation is limiting personal liability. It may seem less likely for a consultant to be sued than a big company, but there are no guarantees in business. Even the most skilled solo businessperson could find him- or herself served with a lawsuit for, say, breach of contract someday.
If your business is not incorporated and you lose the suit, you could be forced to pay the judgment out of your own pocket. The threat of this might also force you to accept a settlement deal you otherwise would reject.
Even if your solo business never ends up in court, incorporating could still make sense. Obtaining a loan for an unincorporated business may require you to take it out personally, which will make many small business owners uncomfortable. There may also be significant tax savings. Finally, having an “Inc,” “LLC” or “Corp” at the end of your business’ name can give you instant credibility with potential clients.
There are other factors to consider that you might want to discuss with an attorney knowledgeable about business organization matters.