Forming a business entity gives the entity and its operators several advantages. First, business entities filed with the state protect one’s personal assets and can limit liability of lawsuits against the business to the assets of the business. Without filing with the state, your business will be a sole proprietorship, which exposes your personal assets in the event of lawsuits against the business entity.
Second, a filed business entity communicates a more professional look to the public. Presence in public records and the existence of corporate indicators such as “Inc.” or “LLC” indicate seriousness and readiness to the consumer who’s comparing goods and services.
Third, corporate governance documents that are frequently assembled alongside the entity’s corporate filings provide structure and regulate operations. The rules set forth in corporate bylaws, for example, regulate the entity’s affairs, and the benefits of such regulation are numerous.
Some entity types filed with the state present tax advantages, such as pass-through taxation and lower tax rates. Finally, according to the United States Small Business Administration, the median income of individuals self-employed at their own incorporated businesses more than doubled that of individuals self-employed at their own unincorporated businesses. Though a mere correlation, this correlation suggests that incorporated business owners are better prepared, more well equipped or better advised by an attorney.