OK, so you decided that you want to own your own business. Good for you!

Now, there may be many reason as to why, especially in these trying times, however...

When you do finally decide on what kind of business (online, offline, or combination of both) you want to build, make it legal.

What do I mean by that?

It means that you do not want to just be a "John Doe" and have checks and payment sent to you that way. It leaves you exposed to all sorts of legal trouble.

Now, there are a few different types of legal forms of businesses you could form. Best to consult a professional, but here are the three main types and their differences.

- Sole Proprietorship
- Incorporation (S-Corp, C-Corp. LLC)

Let's first look at the drawbacks for a sole proprietorship:

With incorporation (either through My Corporation, an Intuit Company; or through Legal Zoom) , you reap the benefits of incorporating or forming an LLC—at an affordable price.

* Forming a business with them is a cost-effective way to protect personal assets and gain potential tax savings.
* Incorporation services can start at just $149 (plus required government fees).
* Lawyers charge, on an average, over $200 per hour. With document filing services, you'll know exactly what you are getting, and how much it costs from the very beginning.

You could file all the necessary incorporation documents yourself. However, when you consider the time involved for filing, administering, and maintaining all the documents necessary to keep your business running legitimately... why would you? Let My Corporation, or Legal Zoom help you get it done, so you can get back to business!

Liability Protection
What Do You Have to Lose?

As a sole proprietor, your liability for business debt is unlimited. Personal assets such as your home, personal bank accounts, and other valued assets may be at risk.

What does this mean? It means that if your business experiences severe financial difficulties, creditors can take away your personal property such as your home, retirement savings, or any other asset you or your spouse own.

In our increasingly litigious society, it is becoming ever more important to limit your exposure and protect yourself from liability.

Incorporating your business draws a firm line between your personal and business assets, helping protect your personal assets from risks or debts associated with running your business.

Tax Savings
Self Employment Taxes and Deductions

If you are operating as a sole proprietor, you will be required to pay self-employment tax on your profit, currently at 15.3%.

If you incorporate your business, only the salary you pay yourself is subject to self-employment tax. Depending on your situation, you may be able to save as much as 50% on your tax bill.

Hidden Benefit of Incorporating
Reduced Chance of Tax Audit

Sole proprietors tend to be more likely to file incorrect returns (many are self-prepared), and tend to under-report revenue or over-report deductions.

For these reasons, the IRS has audited a much higher percentage of sole proprietor tax filings than corporate filings in recent years.

In tax year 2006, a Schedule C filer stood a 1 in 32 chance of being audited. For non-business filers, the odds were around 1 in 124.

This means that sole proprietors are significantly more likely to be audited.
Build Credibility with Your Customers
Develop Your Professional Identity

Distinguishing yourself from the competition by establishing a professional identity helps increase credibility with your customers.

Most businesses choose to incorporate to prove their legitimacy to both customers and suppliers. Adding "INC." or "LLC" after your business name gives you the credibility and professionalism that many customers are looking for.

Plus, there are additional benefits...

Incorporating (Inc.) your business is a great way to protect your personal assets from company liabilities such as creditors or lawsuits. In fact, many people incorporate for this reason alone. But that's not the only advantage.

The corporate business structure also saves you money in taxes, provides greater business flexibility and makes it easier to seek outside investment.

A Limited Liability Company (LLC) protects your assets like a corporation, but without the burden of corporate maintenance. (Compare: LLCs vs Corporations.) That's why it's becoming the most popular way to start a business.

With an LLC, you can elect to be taxed as a corporation, or avoid "double taxation" by choosing to be a "pass-through" entity.

So, when you are ready to start, think of a business name that aligns with your niche and make it legal.

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