Incorporated vs. Unincorporated: Which Business Structure Is Better?

According to one study, 32% of Americans want to start a business.

If you have a good business idea, you might be wondering whether you should set up an incorporated or unincorporated business. After all, if you don’t have a lot of business experience, you may not know how these two options differ.

This post will explore the various sides of the incorporated vs. unincorporated debate. Once you’re done reading, you’ll know which approach is right for you.

Let’s begin!

Incorporated vs. Unincorporated: What Are the Main Differences?

To begin with, let’s take a look at what these two terms actually mean and how they differ.

An unincorporated business is a business that isn’t represented by a standalone legal entity.

If you run a business this way, you are sometimes known as a ‘sole trader.’ Additionally, if you adopt this approach, you might not have a separate bank account for your business.

An incorporated business is a business that is represented by a standalone legal entity.

For example, if you’re a cleaner, you will process all transactions and communications through your company.

You will have separate bank accounts, and you will also file taxes as a business. Additionally, you will have some obligations in regards to filing accounts.

What Is the Point of an Incorporated Business?

One of the main reasons people create incorporated businesses is so that they can create a separate legal entity.

This ‘other’ legal entity will then represent the business activities of the owner/employees.

This legal entity shields these people from a certain level of liability. For instance, if something goes wrong, the company can be taken to court and sued, but the employees/owners won’t be.

Of course, using an incorporated business structure doesn’t provide complete indemnity. That’s because employees and owners can still be taken to court if there’s a very serious issue.

Another ??one of the benefits of incorporating is that you might be able to save money on taxes, especially if you work with an accountant.

Setting up an Incorporated Business

At this point, you might feel as though an incorporated business is better than an unincorporated business. If that’s the case, you might be ready to set up your own incorporated firm.

Luckily, this isn’t that hard to do, as there are online services that’ll help you with this. These services will charge you a small fee, and they will then take care of all the paperwork for you.

Note that if you do go down this route, make sure you identify all of the yearly obligations that are associated with running an incorporated firm.

Time to Start a New Business?

This post has taken a look at the differences between an incorporated vs. unincorporated business.

If you need some additional advice here, you should visit the official Small Business Administration (SBA) website.

There you will learn about all the different structures you can use when setting up a business. You can then use that information to make a solid decision in regards to how you should do things.

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