"Should I Incorporate My Business?" By Attorney Nemia L. Schulte QUESTION: I own a small printing shop and I am the only person working there. Can I incorporate my business if I am the only person involved in this business? Is it necessary for me to incorporate my business? ANSWER: Yes, you can incorporate your business even if you are the sole person running the shop. Whether you should incorporate depends on whether you want the legal and tax protection generally afforded to corporations. As a sole proprietor, you do not have to pay annual corporate dues to the State. However, by not incorporating your business, you may be opening yourself up to personal liabilities in the event someone has a cause of action against your business. There are several good legal and tax reasons why you may want to incorporate your business. First, when you incorporate your business, it will be considered a separate and distinct person from yourself under the eyes of the law. In other words, as far as the law is concerned, you, the individual, are a totally separate person from your printing shop. Your business will have its own "social security number" - or tax identification number. But, more importantly, if someone sues your business, because, say your business printed the wrong type of document, then that person can only go after the assets of your company and not you personally. That is the beauty of incorporating -- you, as the sole shareholder, officer and director, will be shielded from any liability on a personal level in the event someone sues your company. (Of course, if you do not maintain corporate formality between yourself and the corporation, you could be held personally responsible. In other words, you do not respect corporate formality and you "co-mingle" your assets with that of the company's, or you treat the company as your own personal piggy bank, etc.). Another good reason to incorporate is for tax purposes. You may have to pay less on social security, for example, in the long run if you incorporate as opposed to being a sole proprietor. Also, if you do not incorporate, you may be inviting the IRS to audit you. The IRS focuses on small proprietorship because of the lack of checks and balances within that business. The IRS may scrutinize more your expenses and other deductions. It may also want to examine all of your personal accounts (outside of that used for your business) to see how much money you and your business really make. On the other hand, if you incorporate your business, this more or less shows the legitimacy of your business vis-à-vis the IRS. In addition, if you were a small business, you could elect to become a Subchapter "S" corporation. How does this differ from a regular "C" corporation? In a "C" corporation, both the corporation and the individual officer who gets paid by the corporation must pay taxes for essentially the same income. For example, if the corporation had a taxable gross income of $100,000, then the corporation must pay taxes on that income. And if the officer, such as yourself, took a draw (or received income) from the corporation as salary, then you would also have to pay individual income taxes on that draw or income. However, in an "S" corporation, the corporation does not pay taxes - only the individual that took a draw or received a salary from the corporation. However, since this is a fairly complicated accounting issue, I highly suggest you discuss with your accountant which election would be most beneficial to you. Whether you should incorporate requires thoughtful planning and consideration. You may want to consult with an attorney or use the services of an attorney in order to make sure that you are doing it properly. Attorney Nemia L. Schulte practices in Pompano Beach, Fla. Visit her Web site at 123Law.com.