As you likely understand, business owners like you must make potentially critical decisions every day. Often, such decisions center on money matters like preserving profits, lowering costs and avoiding financial liability.
Perhaps you operated successfully as a sole proprietorship for several years but now wonder if incorporating your business might be a smart next step. Knowing why others choose to form a corporation or change to one may help you handle this exceptionally vital business decision wisely.
To shield personal assets
A sole proprietorship is not recognized as an entity separate from its owner. Forming a corporation creates a separate legal entity — meaning you can keep business assets and debts apart from your personal finances. Incorporating may also protect your personal assets if someone sues your company.
To attract investors
Many individuals and groups like to invest in promising business opportunities or startups. However, most prefer investing in corporations because they are structured and guided by a board of directors. If you feel it’s time to expand but need investors, incorporating may help.
To increase credibility
You could operate successfully for decades as a sole proprietor and still not be taken seriously as a legitimate business owner. Some consumers simply prefer to spend their money in formal companies. Turning your sole proprietorship into an official company could deepen your customer pool.
A cautionary word
Back to the subject of decision-making: It may serve your interests to be cautious when making legally binding business decisions. Without legal guidance and knowledge of Pennsylvania laws, changing your legal structure or forming an unfavorable business entity might do more harm than good.