When you’re creating a business, you have many formation choices. You can remain a sole proprietor, if your operation is small, or you can fully incorporate your business.
How do you decide?
Speaking with a professional advisor is a must because they can tell you all the pros and cons of each formation type, but it does help to have an idea of your options before you step into the office to discuss your ideas.
Here are four signs that your company should consider forming a C corporation.
You Don’t Want to Be Personally Responsible for Your Business
This is something many entrepreneurs don’t think about, especially if they just fell into their business. After all, you probably aren’t thinking about being sued or being raked over the coals at tax time for the little operation you run out of your garage.
Unfortunately, both these things can happen, no matter how big or small your business. It is important to safeguard your personal financial liability. A C corporation is one way to do that.
Because your business is listed as a separate entity, your personal finances are protected should the unthinkable happen.
You Don’t Necessarily Want Shareholders to Make All the Decisions
Things can get complicated when you have outside investors giving you money to grow your business. How much stake in the company should they have?
If you want to retain your creative freedom to make choices with your team, you might want to consider a C corporation. Shareholders may own the business, but the day-to-day operations are left to the CEO and other important players you work with on a daily basis.
You Want the Business to Appear Professional
You have to think about how your business looks to customers and clients. To make sure your business looks professional, you can do things like:
- Obtain an official business address
- User larger invoice numbers
- Design a professional website
Forming a business entity is another way you can appear more professional. Although nearly any entity will do, a C corporation will make your business seem larger and more professional than it might be in reality.
You See the Business Being Publicly Traded in the Future
Although it’s true that companies that aren’t listed as C corporations can be traded publicly, the truth is, the majority of them are. If you want to trade stock in your company in the future, you should definitely consider a C corporation.
Especially since it’s the mark of a larger company. You can give people the impression that your company has dozens of employees, which can encourage them to invest.
Deciding which formation to choose is something you should think long and hard about because it will have huge implications on the future of your business.
When deciding, it pays to seek professional help. An advisor who knows about all the pros and cons of each type of formation will be able to help you decide if a C corporation is right for your business.