I am a paralegal with over 25 years experience. One of the biggest mistakes people make when starting a business is incorporating. More times than not, the person hasn't given much thought to the tax implications of becoming incorporated. There is a misunderstanding in the business community that, in order to be considered legitimate or valid, a person has to incorporate their business. This couldn't be farther from the truth.
If the business you are starting could expose you to liability, then by all means incorporate so that your personal assets are protected. However, you need to examine your business and determine whether liability issues exist. If not, then don't encumber your new start-up with unnecessary fees and paperwork headaches.
For example, my company, Paralegal Consultants (www.paralegalconsult.com), provides paralegal/litigation support services to area law firms. Since I am not selling to the general public, my liability exposure is virtually non-existant. As a result, I operate as a sole proprietorship. This entity formation allows me to roll over my business income into my personal income and deduct my business expenses from there. This is a very simplified approach to operating a business and I don't have to worry about stock certificates, articles of incorporation, etc.
On the other hand, if you incorporate (and I'm speaking about Maryland specifically), you will not only be responsible for having a corporate book (i.e., articles of incorporation or organization if you are an LLC, minutes of meetings, stock, bylaws, etc.) but also will be liable for personal property tax, unemployment tax, workers' compensation coverage, etc. These are mandatory items that affect your financial situation and can be problematic if you are not savvy enough to set them up correctly.
I realize there are pros and cons to each situation and there are many more variables in forming a corporate entity that I do not discuss here. Each situation is uniquely different and should be examined independently. However, if you are the only person in your "company" right now and you are starting up a new business, sometimes it is best to take the route of being a sole proprietorship until you determine whether your idea is going to be successful. It can certainly save you a tremendous amount of time and expenses.
And by the way, you can't call yourself a "president" or "CEO" of a sole proprietorship. You can only refer to yourself as "owner." People also make this mistake very frequently.
I'd be glad to help with any questions you may have.
Valerie Nowottnick, Owner
Paralegal Consultants
www.paralegalconsult.com
