Why Incorporate your Business?
When starting a new business, the business owner has many questions and issues to address. One of these questions should be whether to incorporate your business, to form a limited liability company (an LLC), to form another type of business entity or to remain a sole proprietorship.
Why do business owners choose to incorporate their companies? The typical reasons include:
- Limitation of liability/Protection of personal assets. The most important legal reason for incorporating a business is to protect the owners from the liabilities of the business. In other words, the creditors of the business are not able to successfully make a claim against the personal assets of the business owner.
- Transferable ownership. Ownership in a corporation is in the form of stock. Stockholders own shares of stock. Unless there is agreement of the stockholders not to transfer their stock, a stockholder is able to transfer some or all of his or her shares of stock to another party without the consent of other parties.
- Common Understanding and Acceptance of Corporations. Corporations are well known in the United States and internationally. Entering into business negotiations, contracts or transactions with another business or with individual customers may be more successful if you are operating a corporation, as a corporate entity adds legitimacy to your business.
- Employee Benefits. Employee benefits and qualified retirements plans, such as health insurance and 401(K) retirement plans are easily established when operating a corporation, and often times the rates or premiums for insurance is less when utilizing a corporation.
- Taxation. In the United States, corporations are often taxed at rates that are lower than that of the individual stockholders. Corporations may also carryforward losses from one tax year to a future tax year to offset such losses against the future gains (which will result in lower future taxes). Stockholders of corporations formed in the United States may also be permitted to elect to make an “S Corporation” election.
- Raising funds through sale of stock. Capital from investors can be raised for corporations easily through the sale of stock.
- Perpetual Existence. A corporation typically can survive perpetually. Its existence does not end upon the death of stockholders, directors, or officers of the corporation.
Nothing yet.
