Question: My wife and I each have our own businesses. What are the benefits of incorporating, and what are the downsides?
Thanks in advance,
Answer: Wow, broad question. But a good one.
The potential benefits and drawbacks depend on a lot of factors. What kind of business is it? Do you have customers coming into a physical location? Are there risks for your customers associated with the product or service you sell? Are you and your wife the only owners or do you have co-investors?
Setting up a business entity can limit or eliminate your personal liability for injuries that your business may be legally responsible for. They can give you a way to partner up with other owners to raise cash. On the downside, they require you to pay close attention to the formalities of running a business, such as keeping your business accounts and books separate from your personal accounts and books, and documenting a lot of your decisions. They can also complicate your taxes.
But all of this depends on what type of business you’re running and what type of entity you choose to create (a corporation, a partnership, an LLC, etc.). If these businesses are a significant source of income for you and your wife, it’s highly likely that you are going to want to have some sort of entity in place. But you would be well advised to talk to a lawyer about the specifics of your situations to ensure that you choose the right type of entity for you, and to ensure that you understand how to properly observe the legal formalities required by that entity so that you can be sure to enjoy the benefits of limited liability.
If you’re setting up a business in Colorado, and are wondering what the best entity would be for you, give me a call. I can advise you on entity formation and on the steps you need to take to ensure that your liability is limited