When Should You Incorporate?

by Fred Abramson on January 7, 2011 · 0 comments

Image representing Etsy as depicted in CrunchBase
Image via CrunchBase

You have this great business idea and perhaps you are short on funds. You know that you should speak to a lawyer. So you decide to call my office looking for some advice.  The first question that you will probably ask is if you should incorporate your business.  My answer is nearly always yes.  Here’s why:

  1. You own assets. Corporations are great because if play by the rules, your personal assets will be protected.  If you decide to sell a Amigurumi Zombie Panda on Etsy and it turns out that your cute toy is defective, you can be personally sued if you fail to incorporate. The lawsuit itself could take five years and a judgement is good for 20 years. Even if you don’t have any assets now, if you have faith in your idea (you should) your   For under a grand in legal fees, you could establish your company as a  S Corporation in New York.
  2. You have a partner. If you have a business partner, you are absolutely crazy if you don’t incorporate. You are certifiable if you don’t have an operating agreement.  There are millions of things that can go wrong. What happens if you are the one who has the great idea and your business partner is the money guy and you have a falling out? Who has ownership of the business?
  3. You want to borrow money. If you want an SBA loan, you are required to incorporate.
  4. You want to sell to the government or a large company. Many government contracts are only open to corporations. Due to the crackdown by the IRS on independent contractors, large companies rather hire a corporation rather than a sole proprietor.
  5. You want investors. Do you really think that an angel will be willing to invest your unincorporated business? How are they suppose to get a piece of the action?

For more reading: Top Ten Legal Mistakes Made by Entrepreneurs.

If you have a question regarding incorporating your business in New York, contact the Law Office of Frederic R. Abramson at 212-233-0666.

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