Practice Areas


Wendell L. Belknap
411 5th Street
Oregon City, OR 97045

Tel: 503-657-8946
Fax: 503-655-2775

Email Wendell


Incorporating Your Business

Many small business owners mistakenly believe their business is “too small” to incorporate, and that incorporating is for large, multi-national companies. These small business owners are mistaken; perhaps because they a

re unaware of the benefits incorporating can have, even for “the little guy.” Certainly there are many considerations which enter into the decision whether to incorporate. However, I believe there are primarily two reasons to incorporate your business. The first is the limitation of liability that incorporating can create. The second is the tax savings that can be created by ways to pay out the company profits to the small business owner. Either reason alone might be enough to justify incorporating for some clients. The client should consider both factors in deciding whether to incorporate the client’s business.

Many business owners want to limit their potential liabilities. Clearly, not all potential liabilities can or will be avoided by incorporating. But, some potential liabilities can and will be avoided by incorporating.

I form more corporations because of the tax savings to the client than I do for the potential limitation of liabilities. While some businesses may have insufficient revenues to justify incorporating, it is my experience many business owners do not realize that they could benefit by incorporating their businesses even though their adjusted gross revenues are still relatively modest (“adjusted gross revenues” means the business’ gross receipts, less the business’s costs or expenses of doing business). I have spoken with many accountants who believe the tax savings to their clients makes incorporating worth the effort and cost even though the client’s adjusted gross revenues are as low as $20,000.00-$30,000.00, provided that income is from the active efforts of the client, and not passively earned (such as in the case of rental income on real property). Even at this level, the company can pay a small amount to the owner in the form of a salary, and pay the balance to the owner in the form of a dividend on the business owner’s stock. This distinction is important because the amounts paid to the owner in the form of dividends are not subject to social security taxes, while the amounts paid to the owner in the form of a salary are subject to social security taxes.

The analysis whether to incorporate is more complex than the foregoing implies, but that which is set forth above is the beginning of the analysis. Ultimately, whether to incorporate is both a legal and an accounting decision, and both of the client’s legal and tax professionals should be involved in the decision-making process.

Please contact me if you wish to further discuss whether incorporating is right for your business.