The main reason to incorporate (or form an LLC) is to minimize your personal liability. Once your business is incorporated (either by forming an LLC or Corporation), it exists as a separate business entity. Essentially, you put a wall separating your personal assets from anything in the business.

The only real “drawback” of incorporating is that you’ll need to operate your business at a higher administrative level than you’re used to as a sole proprietorship. In addition, incorporating as a C Corporation can result in higher taxes for some small business scenarios due to double taxation.

As mentioned above, the C Corporation’s tax structure isn’t optimal for many small businesses, since business owners often are taxed twice on the profits. However, Corporations can elect for “S Corporation” tax treatment. Often called a “pass-through” entity, an S Corporation doesn’t file its own taxes. Rather, profits and losses of the business are passed through and reported on the business owner’s personal tax return.

Trademarking your business name gives you unique rights to your name within your industry. This prevents other businesses from using your business’s name and confusing customers who are looking for you. It also helps prevent competitors from doing business under names similar enough to yours that they could be mistaken for your company.

The best way to deal with this is to either keep the corporation you set up and qualify it to do business in the new state, or set up a new corporation in the new state, acquire all of the stock of the current corporation, and then dissolve your current corporation.Both of these approaches have their benefits. If you choose to keep your current corporation, it will be easier and cheaper, but it can be more expensive in the long run because you have to pay taxes to and comply with the rules of two states instead of one.

You often hear of companies incorporating in Delaware, Wyoming or Nevada. That’s because Delaware offers flexible, pro-business statutes, while Wyoming and Nevada feature low filing fees as well as no state corporate income, franchise or personal income taxes.However, as a general rule of thumb, if your business will have fewer than five shareholders, you should incorporate in the state where you actually live or where your business has a physical presence (such as an office.) When you incorporate in a different state from your physical presence, you’ll need to deal with added fees and paperwork, since you’re considered “operating out of state.” And for most small businesses, the added hassle and fees just aren’t worth it.