There is so much talk – sometimes uninformed talk – about incorporation that it warrants us addressing it here today.
To start with, the term incorporation technically refers only to creating a business corporation. However, in lay terms, it often also encompasses organizing a Limited Liability Company (an “LLC”). Now may be a good time, as a matter of fact, to point out that the answer to the commercial’s question “LLC or S-Corp” might as well be “both.” An LLC is a legal structure, while S-Corp refers to a tax election. You can organize an LLC and elect to be taxed as an S-Corp.
For most people, Incorporation is not (or should not be) a question. Traditional entrepreneurs starting a new business must incorporate. Equally traditional W-2 employees need not do so. The advantages of incorporation flow from their employers and they need not do anything more.
There are many solo professionals, from financial advisers to accountants or some in the healthcare industry, who fit in neither category and have the more pressing questions about incorporation. They often work under a corporate umbrella but as independent contractors (reporting their income on a 1099 form).
More often than not, those professionals should incorporate too. Their corporate umbrella gives them a recognizable name, some resources, but little legal protection. Organizing an LLC to carry out their profession comes with a number of benefits. Not the least among those, it helps protect their personal assets from claims arising out of carrying out their business. It often carries tax advantages too, though we will leave that determination to our CPA friends.
Of course, every situation is unique, making the help of a good attorney particularly useful.