There are tax and legal considerations when it comes to organizing your business as something different than a sole-proprietorship. Incorporation allows you to protect your personal assets, acquire limited liability, especially in risky endeavors, and take advantage of deductions tax benefits provided to the business. Additionally, start-ups and small businesses that are incorporated have a better chance of getting investors, because no investor want's to be involved in a project that offers to risk limits.
Protection of personal assets
Once a business is incorporated the business is a legal entity (like a person) different and separate from its owners. The assets acquired by the business entity are not the owners' assets and cannot be attached by creditors. In order words, creditors or third-parties may only sue the business to recover money or damages. Following the same logic, the assets of the individuals that own the business are separate property. The separation of assets allows business owners to protect their personal assets from the risk and liabilities associated with carrying on the business activities. Additionally, it allows business owners to organize their affairs and have a clearer picture of the real situation of the business.
The great endeavors of businessmen have been achieved thanks to limited liability. Limited liability refers to fact that those involved in a business may only respond to the extent of the amount contributed to the business. Limited liability allows investors and entrepreneurs to measure and control their risk. Additonally, the possibility of limiting one's liability creates opportunities to easily transfer interest in a business and also increase the number of participants.
If you are looking for investors in your company, you have a better probability of getting investors if you are incorporated. If there is anyone interest in putting money in your business they will more likely do it if they also enjoy the benefits of assets protection and limited liability. Additionally, once a company has been incorporated is in a better position to hire personnel, assume risks and operate.