Why Even Solopreneurs Can Benefit from Establishing Corporations

Working for yourself is where it’s at, whether you’re a freelancer who provides services to other businesses or a bootstrapping entrepreneur striving to bring your passion project to sustainable life. No more bosses taking credit for your ideas and output, no more limits on earning potential, no more nine-to-five grind and no more soul-crushing cubicles.

For many independent businesspeople, solopreneurs, micropreneurs, or whatever you want to call yourself, the “sole proprietorship” legal and tax status makes the most sense – especially if you’re just getting started. In fact, nearly three-quarters of all businesses operating in the United States fall under this status, according to census data.

Small Business

Source: https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf

However, once you’ve started establishing yourself in your field, your client base starts growing, your workload gets steadier and your business begins to feel more stable, it may actually make sense to incorporate. Even as a one-person company sticking it to the man, going corporate can be an attractive option.

Yes, many of us in the independent business sector have chosen the route of freelance to be free from of corporate world, its practical restraints and all the emotional baggage that comes with it. While incorporating isn’t for everyone, it may actually be right for you – or it may not.

Let’s take a quick look at the main benefits of founding and operating as a company. You may be surprised to find yourself curious to learn more.

What’s the Difference?

There are several different types of company statuses and sub-statuses recognized by the various administrative bodies that businesses contend with in the United States. Yeah, there are plenty of nuanced differences between a partnership and a sole proprietorship, or an LLC and an S Corporation, but all of the statuses and their variations fall into these two general category buckets:

  • Sole Proprietorship: A company owned and managed by an individual (in this case, you) who assumes personal liability for all aspects of his or her business, including debts and accountability.
  • Corporation: A company owned by shareholders (in this case, still you) with the company’s financial and legal culpability distinct from its stakeholders.

Here are some of the key advantages of going corporate.

The Financial Benefits of Incorporating

While everyone has different specifics to weigh before coming to a final decision, and you should definitely consult with your lawyer and accountant to before making any moves, the financial benefits are usually what drive solopreneurs to incorporate.

If you set up your business as a corporation, you’ll be able to handle your taxes at a corporate rate instead of an individual rate. Another tax advantage is that once seen as its own entity, you can claim business expenses separate from personal expenses and in turn offset your income tax. C Corporations, moreover, can claim more types of expenses (health insurance, life insurance, company cars and even some education spending) on their books than other types of businesses.

Need an injection of cash to fuel your business growth? Many solopreneurs have found that it’s easier to obtain loan approvals and/or secure investments from third parties is easier as a corporation than as an individual.

The Legal Benefits of Incorporating

As a sole proprietor, you leave yourself open to lawsuits and retain personal responsibility for any debts your company may accumulate. Meaning, if a client were to file a lawsuit against you, or creditors were to come collecting, they can easily go after your personal assets.

Here the separate entity thing comes into play once again, as it creates a layer of protection against personal litigation. This will help to keep your assets out of the hands of pursuers. It’s a lot safer for you and your family.

The Business Growth Benefits of Incorporating

We mentioned above that with the growth of your business, you may find yourself looking for investors and/or loans, but there’s another growth benefit of incorporating: street cred.

Freelancers are a dime a dozen in almost every field, and potential clients want to know that they’re putting their time, money and energy into someone who takes his or her own business seriously and won’t disappear overnight. Incorporating gives you the ability to brand yourself as an outfit worthy of high-stature clients, which means more work at a higher pay point.

The Status That’s Best for You

Yes, “corporate” can be a conceptual turnoff to many. But not everyone who owns a corporation needs to exploit people for profit. There are plenty of multinationals that have that covered. Give yourself permission to think of a corporation as a legal and tax business status that doesn’t necessarily involve dress codes, TPS reports or fluorescent light fixtures.

With this perspective, you may soon find yourself looking deeper into the option of opening one. The benefits to your business credibility, tax exposure and investment worthiness are too big to ignore.