Why You Need To Incorporate Your Consulting Business
You should always incorporate your consulting business, no matter how small you are. In this post I’ll go over 4 reasons why you need to do so, and also discuss the different forms you can take; C corp, S corp, LLC, etc. When starting out as a consultant many people don’t want to focus on this, they just want to get some business. But I urge you to take the time to do this now, you only have to do this once.
The first reason you need to incorporate is for legal protection. Although when you are first starting out you don’t have much in the way of assets, this will at least keep people from taking your car or house in a legal proceeding.
The second reason is that you can keep your personal and work finances separate. Not only is this more professional you can also have a separate line of credit and bank accounts this way as well.
The third reason is because a corporation can raise money on its own and if you should make your business a success you can sell shares of interest.
The fourth reason to incorporate your consulting practice is because it looks more professional to your clients. Many clients expect you to work for a business, not just for yourself, and when you have a business card that says incorporated, or LLC on it, you gain a lot of credibility.
Forms of Incorporation
1. C Corporation
This corporation offers more advantages than the S corp for consultants. You have to make sure you take all the profits out of this at the end of the year to avoid double taxation though.
2. S Corporation
This is for small businesses where the money flows through the owner’s personal tax returns. The good thing about this form is that there is less administrative work.
3. LLC
An LLC is often best used for managing assets like properties.
Remember no matter what legal incorporation you take you can always change it.
While you can incorporate very cheaply over the internet, sometimes it pays to spend money on a good lawyer for this. If you don’t know what corporation to form, look at other consultants in your field and see what form they take.
