The Woodlands

What are the Pros and Cons of Incorporating a Business?

March 27, 2023

When starting a business, you will have many business structures to choose from. Incorporation is one possible option that provides many benefits, depending on your commercial enterprise and its needs.

However, incorporating a business can also have some drawbacks, and you should understand these potential issues before you select this business structure. Here are a few key points to keep in mind.

Pros of incorporation

Perhaps the biggest benefit offered by incorporation is the liability protection. Should another party sue your business, your personal assets remain protected. In the event the business does not have enough assets to pay off debt or provide compensation for loss incurred by clients or associates, the party filing suit cannot seek compensation on a personal level.

Fundraising is also easier for corporations. If your business requires funds to cover debt or to expand operations, you can sell shares of stock to cover these expenses. Stocks also make it easy to transfer ownership of the business to another party, since the owner of the stocks can just sell their shares when motivated.

Cons of incorporation

Unless your business is an S corporation, taxation will increase. This is because most corporations are subject to double taxation, meaning the corporation and the shareholders must remit taxes. There are also a lot more legalities that corporations must adhere to, which is not the case with simpler business entities.

Finally, the act of starting a corporation is more complex and time-consuming than other business structures. There are many steps in this process, from developing bylaws to distributing stock certificates to shareholders. Additionally, you must remain compliant with specific laws and statutes to prevent your business from facing penalties.

Picking the right business structure ensures you have the best chance at running a successful enterprise. If the needs and status of your business change as time goes on, you can always revisit the current structure and make updates to it as needed.

Working with a competent business organizations attorney who is focused on the changing needs of your business will protect you from costly legal and organizational mistakes. An experienced attorney will answer your questions, making the entire process less stressful. The attorneys at Quadros Migl & Crosby serve businesses and business executives from their local offices in Houston, Dallas, and Austin. Call today to schedule your initial consultation or to speak with one of our experienced business organization attorneys.