How important is it to Incorporate a company? How likely is it I will be sued for everything if I don't?
Incorporation might give you some personal liability protection against creditors, and torts committed by your employees. If you personally commit a tort under the banner of the company, you can still be sued personally. Incorporation will only protect you in certain cases. But, think of it this way: If you don't incorporate, you'll definitely be the defendant in any lawsuits against your business.
Generally, the reason to incorporate is to limit your personal liability. It usually isn't costly and unless you are operating on a VERY small budget, it is probably worthwhile in most cases. However, you should understand what it does and what it does not do for you. Read "How Limited Is Limited Liability?" for a good overview.
Certainly not the case in the UK. One of the most common reasons for incorporating is either because of taxation reasons or because of dealing with suppliers (rightly or wrongly companies are viewed more positively than sole traders) Again on budget, it may be true for the USA but as an international forum, it isnt always best in the UK to incorporate as the returns to Companies House are much more complex than those to HMRC and so an accountant is often needed. Likewise the tax advantages of incorporating only really kick in when you become a higher rate tax payer (ie earning over £35,000 - $53,000). Have no tax advantage and have to pay £1,000/ $1,500 a year in accountants fees and it doesnt always make sense, after all insurance will cover most liabilities and will be much cheaper than that
I'm in Texas, US. I incorporated because if I do develop a significant amount of revenue with my business, I have some decent tax deferral and write off options for all legitimate business expenses. Every state in the US has their own requirements for incorporating and the fees vary - for me it cost about 325 bucks + the fees I paid to the online service that submitted all the paperwork for me (100 in fees). Although I could have saved 100 by spending the time to figure out how to do all the paperwork myself.
I agree with Business Attorney. However, since you aren't versed with the law of the land, I recommend retaining an atty to help you with formation and the legal requirements and how the corporate veil can be pierced, etc. This can be a complex area of law for the unweary.
you can incroporate online for a few hundred. If you aren't making a lot of money in whatever you do, or if you aren't doing something to anger people, it might not be necessary.
In most countries a company doesnt stop you paying personal income tax. You pay corporation tax on your profits and pay income tax on the income you draw from the company. It can become more tax efficient because you can also draw some of the money as dividends and capital gains tax + corporation tax tends to be lower but more importantly it also means that you often have 2 tax free allowances come into play. You can generally also get others on board as at least shareholders and so they also get dividends and also a capital gains tax allowance. By structuring yourself properly you can generally be more tax efficient but a basic set up of company paying corporation tax and you drawing all profits as salary would result in you paying more tax than a sole trader
Great articles. However, I agree with several other points. Get some revenues first, worry about the overhead stuff later. The good guideline I've heard - unless you are making $1000 in profits/ per months don't worry about LLCs. Lawyers like to sue people with money. If you don't have much money, their kill wouldn't be worth the hunt.