Why Individual Consultants Should Incorporate

Many freelancers and consultants struggle with the decision to incorporate or form an LLC or continue being self-employed when it comes to taxes.

While you aren’t legally required to incorporate, it does come with many benefits. Incorporating may do more than just save you money on taxes; it can also help you protect your personal assets. Here are some important reasons to form a limited liability company or incorporate.

1. Liability Protection

If you’re in a business that involves liability, it’s definitely important to incorporate or form an LLC. For many consultants, this issue comes up as their contracts become more valuable. The more money that’s riding on the result of your services, the more likely a client will take action if he or she get unsatisfactory results.

Incorporating creates a legal barrier between your business and your personal assets. If your business is sued for breach of contract allegations or any other reason, your personal assets will not be at risk.

2. Tax Benefits

You may enjoy greater tax benefits and savings by incorporating, although it isn’t a guarantee. If you choose to form an S Corporation, for example, you will be required to pay income taxes on your share of the business income at your personal tax rate but you can use corporation losses to offset the rest of the income.

3. Reputation

As you seek to grow your business or take on employees, having a corporation or LLC adds credibility to your business. This can help with branding and attracting new clients, especially if you want to go after bigger clients like large corporations.

4. Raising Capital

Raising capital as a sole proprietor can be a major challenge. While you may be able to get a business loan, it will be a personal loan, not a business loan, and it will be your personal credit on the line. Investors and banks are more willing to work with and invest in an LLC or corporation than a sole proprietorship.

While incorporating may not be a big priority when your business is just getting started, forming an LLC is an affordable way to get liability protection that may save you if you ever get into trouble over a contract or debt you can’t pay.

Incorporating or forming a limited liability company is straightforward; you can work with a corporate services company or do the paperwork yourself to register your new business entity with the state. Be sure to discuss the consequences with an expert as your choice of the entity will have a major impact on your taxes, expenses, and ongoing requirements.

Dragan Sutevski

Posted by Dragan Sutevski

Dragan Sutevski is a founder and CEO of Sutevski Consulting, creating business excellence through innovative thinking. Get more from Dragan on Twitter. Contact Dragan