Do I Really Need to Incorporate?
Good question. Before making this decision, take a hard look at your status quo and your business goals.
"The key to succeeding in business is developing a good business plan," says Jeff Dee, assistant director of the Small Business Development Center at St. Louis University. If you don't already have a written plan, sit down and create one. Specify what you want your business to do, who your customers are, and how you will conduct the business. The discipline of doing this will help you determine priorities and focus on achieving your major goals.
You may have a great idea for a business, but do you also have the energy and resources to carry it through? If you work full-time, will you continue at your current job until your business gets going? While this can be a good way to test the waters, make sure job and family responsibilities will leave you enough time to do the venture justice.
Will you finance the business from your own funds, or will you need to borrow money? Incorporation may make you appear more like a "real business" when you approach a bank for that loan.
Many people incorporate because they want to limit their liability. So next, consider the nature of your business and the degree of legal risk it involves. Can you think of any ways in which your product or service could injure someone, or cause a client to lose money? If you create a tangible product, you may well need protection against liability. If you deal in intangibles, this question may be harder to answer.
Talk to customers and competitors. How many independent contractors in your field are incorporated? Do clients prefer to deal with them?
Assess potential risk by asking insurance agents whether they insure many business owners in your field. What types and amounts of coverage do they recommend? Rather than incorporating, some business owners handle liability concerns by purchasing errors and omissions (E&O, or professional liability) insurance. E&O insurance offers some protection against the financial consequences of rendering professional services, but premiums tend to be high. Some technical communicators buy it, although it's more common in professions such as accounting, architecture, and real estate sales. (For more on insurance, see Chapter 15).
Another point to consider: Will you work alone, or with other people? If you plan to hire employees or take on a partner, it's smart to incorporate. You could be held liable for mistakes made by employees, even if you didn't specifically authorize their actions. In a general partnership, each partner is equally liable for the business's debts and the actions of the other partners.
For more information, call the closest Small Business Development Center. (SBDCs are often located at a university; consult your phone directory.) Funded by the federal Small Business Administration, these centers are a great local resource for free information, business counseling, and classes related to all areas of business planning and management.
Another helpful Small Business Administration resource is SCORE (Service Corps of Retired Executives; call 1-800-634-0245 for the chapter nearest you). In addition to offering business start-up information and seminars, SCORE volunteers provide one-on-one counseling for current or would-be entrepreneurs. Says longtime SCORE counselor Harry Sumner, "We're happy to discuss all kinds of business issues, including the pros and cons of incorporation for your particular situation."