Why Some Hispanic Small Businesses Choose to Incorporate

Why Some Hispanic Small Businesses Choose to Incorporate

by Julie Schwietert Collazo , January 2020

Para leer este artículo en español, haga clic aquí.

Deciding whether or not to incorporate is a big decision for any small business. But for Hispanic small businesses, it can also serve as a signal to potential customers that this is a serious venture.

Why Some Hispanic Small Businesses Choose to Incorporate

When Ivan and Karina Oliver, first-generation Americans who were born and raised in Juárez, Mexico, and immigrated to the U.S. in 2010, decided to launch a business, they wanted to make sure the business was positioned as a professional enterprise. "We wanted to launch our own business and to communicate that we were committed to opening this business under the banner of an incorporated entity," says Ivan.

The Olivers, who have a cleaning and damage mitigation business, believed that incorporating would indicate to prospective customers that they were credible, and that's certainly one advantage of incorporating your business, experts say.

However, the benefits don't end there. Incorporating can bring you and your small business a greater degree of flexibility and security in a number of areas. Here are several reasons why you might want to consider incorporating.

1. You can reduce your personal liability.

Without the protection conferred by incorporation, your personal assets can be at risk. That means that if you have an accident (or someone else has an accident in or related to your business), if you accumulate debt through your small business, or you become otherwise involved in legal proceedings, you will personally be responsible for paying the consequences—literally.

"Incorporating your business as a corporation or registering your business with the Secretary of State as an LLC or LLP is generally a good idea because it can protect you and your family and your other personal assets from liability exposure—like getting sued under your own name or owing certain debts personally," says Texas-based attorney Tomas Caquias.

Caquias explains that incorporating separates you from your business in the eyes of the law. More importantly, it separates your assets from your business in the eyes of the law. In a worst-case scenario, incorporation shields your finances and collateral in the event of a legal or financial crisis.

2. You can access more capital.

Your options for accessing more capital as a Hispanic small business owner will vary based on what kind of corporate structure you choose—LLC, S corp., or C corp.—but taking the step of officially incorporating will likely make it easier for you to attract financing, whether by issuing stock or seeking a bank loan.

This advantage of incorporation is especially attractive for many Hispanic small business owners, especially those who do not historically have access to capital at the same rate or level as their white peers.

"One reason a Hispanic-owned business may want to consider incorporating or registering with the Secretary of State and paying the state fee is [that] grants and other non-equity oriented monies are available to help your business grow," Caquias says, adding that such opportunities vary from state to state. The local Chamber of Commerce is a good place to find more information about this potential benefit.

3. You can enjoy tax benefits.

If you're a Hispanic small business owner who's looking to maximize your tax benefits, incorporating can play a part in helping you achieve that goal. As a corporate entity, you will be able to take advantage of tax deductions that you would not be able to claim as an individual. Qualified business expenses offset taxable profits. Other expenses that can be deducted include health insurance benefits and pension contributions. Caquias says that Hispanic small business owners "often work in very dangerous professions, such as pipefitting, oil and gas, plumbing, roofing, construction, mechanics, truck driving, and restaurants," so insurance is essential for their safety, and for the safety of others. As a corporate entity, the cost of insurance is considered a business expense.

You'll want to consult with your accountant to understand the full advantages and considerations related to tax deductions as a corporate entity.

Incorporating doesn't just show that you're as serious as the Olivers about running your business as exactly that: a legal entity. When formed in a way that reflects the realities and needs of your particular business, incorporating can confer numerous other benefits as well. Be sure to consult with a trustworthy attorney and accountant to understand the options that are available to you and which are best for your business.