Response from Rick Barra:

Business owners typically incorporate for two main reasons- to avoid individual liability for debts and obligations of the business and to provide a simple means for transferring ownership interests in the business. Incorporation may protect your personal assets from claims of creditors of the business. Additionally, incorporation allows you to sell or transfer ownership interests via the conveyance of stock.

Incorporating a business also creates additional accounting expenses and other obligations. An annual report must be filed with the Department of State; annual filing fees must be paid; tax returns must be filed and meetings of the shareholders and directors should be held periodically.

You should review your personal objectives to determine if the benefits of incorporation outweigh the additional expense and requirements. For example, do you face potential individual liability which could be avoided through incorporation? Do you sign contracts or leases? Could you face liability to third parties for personal injury for use of a “company” car? Will the ability to convey an interest in the business to another party benefit you or do you simply work as a “one person” shop?

If you decide to incorporate you should discuss the tax consequences with your tax advisor. Business owners often feel that incorporation provides tax benefits (such as deduction of business expenses), which are not otherwise available. Many of these benefits are available to sole proprietorships without the expense and additional hassle of incorporation.