Final answer:
The best reason for Luke Lin to incorporate his business is to benefit from limited liability, which protects his personal assets from business liabilities. Additionally, tax benefits and an improved professional image are advantages of incorporation. These benefits must be balanced against the costs and administrative requirements of running a corporation.
Step-by-step explanation:
Luke Lin should consider incorporating his business for several reasons. One of the best reasons is the limited liability protection that incorporation can offer. As a sole proprietor, Luke is personally liable for all debts and legal actions against his business, which means his personal assets, such as his home and savings, could be at risk if his business were sued or incurred significant debt. However, when a business is incorporated, it is considered a separate legal entity, and the owner's personal assets are generally protected from business liabilities. This limited liability can be especially important as Luke's business grows and takes on more contracts, potentially increasing the legal and financial risks.
Another advantage of incorporation is potential tax benefits. Corporations can take advantage of tax rates that can sometimes be lower than individual tax rates, and they may be eligible for additional tax deductions and credits that are not available to sole proprietorships. Lastly, incorporation can enhance the credibility and professional image of Luke's business, which can be beneficial in securing future contracts and expanding his customer base. These factors should be weighed against the costs and administrative requirements of incorporation, including ongoing record keeping and potential changes in how Luke would be paid as the owner of the corporation.