Advantages of incorporating your business are numerous.
Personal Liability is reduced. Incorporating your business separates your personal identity from your business. Law suits and debt can be a nightmare, should things go wrong for a sole proprietor or partner company. Creditors can bring law suits against their company and can seize the owners’ home, car, savings or other assets. In a corporation, shareholders are protected because they are not liable if the business fails. Their personal property can not be seized.
Incorporating your business add credibility. You wouldn’t go to a doctor that did not have Ph.D. attached to his name, why would you give up the importance for your company? A corporation communicates permanence, credibility and status. Whether you are the sole stockholder, your business could be perceived as a much larger and more credible organization. The “inc.” can send a powerful message to customers, suppliers, and other businesses that your company has a great reputation.
There are also tax advantages to incorporation. When you incorporate your business, it provides tax-deductible benefits for you and your employees. Benefits such as health insurance, life insurance, travel and entertainment expenses may be deductible. An increased tax shelter is available for corporations and offer qualified pension plans or retirement funds, such as a 401k.Through the sale of stock, capital can be easier to accumulate than with a sole proprietorship or partnership. Investors are easier to attract because of the lack of personal liability. Investors are more likely to buy shares in a corporation where there is a separation between personal and business assets. Many banks will lend money to corporations before they will lend to a private owner.
Corporations are enduring. Corporations may continue on regardless of what happens to the individual director, officers, managers, or shareholders. Corporations can continue even in the event of the owner’s death or illness. If a sole proprietor passes, his assets may be divided among family or creditors and the company may cease to exist.
Ownership of a corporation can be easily transferred through the sale of stock. The operations do not have to be disrupted and there is no need for complex legal documentation for the change to take place.
Anonymity is available within a corporate structure for its owners. If public knowledge about you is something you do not wish to be involved with, incorporation can provide that. If you are the sole owner or in a partnership, you will most likely be required to provide your name and the name of your partners with the state and county officials in your area.
All decisions in a corporation are made by the board of directors. With a partnership, each party must agree on what will benefit the company. Because of this, a centralized management is achieved.
There are very few reasons in which you may not want to incorporate your business. The downside of deciding to incorporate your business is that profits gained by the corporation are taxed twice. First when the shareholders are paid any profits and when the shareholders file their own personal taxes. Record keeping is essential for tracking profits and losses. Business expenses such as salaries can be deducted however, can minimize the loss through taxation.
While the corporation is owned by the shareholders, they are not involved directly with the management of the corporation. For this purpose, directors are elected to keep track of the business necessities.
After weighing the facts, it’s now time to decide if incorporation is right for you and your company.
By R. S. Wagner