Incorporation involves certain important legal considerations, as well as various tax consequences. From a legal point of view, incorporation of a business may protect the principal owners of the corporation from personal responsibility for various financial and legal liabilities. On the other hand, the requirements of operating within the corporate format impose specific legal reporting duties, tax consequences, and other responsibilities that differ from those imposed on a partnership or sole proprietorship. Therefore, the decision to incorporate a small business is an important matter that should be discussed with your attorney and your accountant.
Those discussions should involve the specific goals which will be affected by the type of business format on which you decide. For instance, if the primary goal is protection from liability, the corporate form may be advisable even if it may create additional tax consequences. However, after thoroughly discussing your plans and goals with a professional, you may decide that a partnership or limited liability company adequately serves your needs. You should be sure to have drafted an agreement between the incorporators and stockholders, partners, or members of the company. The purpose of this agreement is to carefully define the various rights, duties, ownership interests, and division of liabilities of the parties to the business enterprise.
If you do not have an attorney and have questions about this topic or other legal concerns, please contact me at your convenience.