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Do You Need to Incorporate Your Etsy Store?

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By Christopher Coble, Esq. on April 16, 2015 1:04 PM

Congratulations! It looks like your Etsy business is booming. Sales are so high you're considering getting a partner or even hiring employees.

However, before you do any of that, have you incorporated your business? Do you need to?

For business owners, incorporating a business can have tax benefits and ensure limited liability, but it can also be a hassle. Here are the pros and cons of incorporating a business:

Pros

  • Limited personal liability - Incorporating puts a wall up between you and your business. Once incorporated, your assets cannot be seized to cover business liabilities. Conversely, your business assets cannot be seized to cover your liabilities. Without incorporation, everything is fair game. If your business gets sued, your personal assets, such as bank accounts, college savings, or even home, may be taken to cover the liability.
  • Attract investors - Corporations have the option of issuing stock to attract investors. You may need those investments if you're planning on growing your business.
  • Attract employees - You'll also need employees. You can attract employees by offering stock options. This is a great way to get quality employees even if you don't have the money to pay huge salaries.

Cons

  • Time and Cost - Incorporating a business is not easy. You have to figure out all the corporation rules in your state that apply to your business. Then, you'll need to file articles of incorporation, and create your corporate bylaws. Remember, you'll have to update those articles of incorporation and bylaws as your company grows.
  • Corporate Formalities - If you want to call your business a corporation, then it has to act like a corporation. This means you'll have to hold annual board of director and shareholder meetings, assign officers, keep minutes, keep detailed records of corporate funds, and file a separate tax return for the corporation.
  • Tax Liability - Depending on how your corporation is set up, you may be double taxed. This means your business is taxed on its profits. Then, you earn those profits in the form of dividends, and you are taxed again! This can be avoided if you earn a salary instead of dividends or your business is set up as an "S" corporation.

If you do decide that incorporating is a good step for your Etsy business, an experienced business attorney will be able to help. If you would like to do the incorporation yourself without an attorney, FindLaw offers state specific Incorporation Forms packages that will guide you through the process step-by-step.

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