Guide to Where and When to Incorporate

2007-03-08 10:33:40

( Business )



There is no specific timeline on when to incorporate your business. The need for forming a corporation usually arises from several reasons or events, such as exposure to potential liability. When to incorporate is also dependent on your objectives for incorporation. As your business expands, you might realize that the present structure of your business may no longer be appropriate for the size of your company. The need for more capital, the increasing number of partners and growing income may compel you to change the legal structure of your group.

Reasons that will help you decide when to incorporate your business.

The key reasons that may help you determine when to incorporate your company include financing, limited liability, credibility, incentive compensation, and tax benefits.

The need for financing is often the main reason for incorporation. The ability to raise funds through the issue of stocks is one of the benefits of forming a corporation. Owners are also attracted to the limited liability feature of a corporation. The idea that owners, or stockholders, have a reduced liability over the corporation’s debts and obligations is really appealing. Since a corporation is perceived to be stronger and more established, you may decide to incorporate your business to increase the credibility of your company. Another benefit of incorporating is being able to provide stock options, which only a corporation can offer, as an attractive remuneration to employees. Lastly, corporations enjoy some tax benefits, including the deductibility of some business-related expenses of owners.

Where to incorporate

There is no restriction on where you could incorporate your business. However, many opt to incorporate their companies in the states where they are currently conducting the business to expedite their registration. A number of companies also incorporate in Delaware because of its pro-business environment. The absence of corporate income taxes also makes it attractive to incorporate in Nevada.


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