If a business, which is mixed with personal assets, suffers losses, the owner is bound to lose everything. When personal assets are not involved with business the owner can always rely on these assets if the business suffers a set back. Forming a corporation is a step towards protecting the owner from liabilities.
A List Of Benefits For Incorporation
Once a company is incorporated, it receives the status of a separate legal entity. It is a lot like a person, which can sue, be sued, and enter into contracts. This helps to establish and increase the credibility of the company among its employees and customers. Below is a list of benefits for owning a corporation.
1.A corporation offers limited liability protection to its owners. Owners are not liable for any obligations or debts of the corporation. This applies as long as the owners have not signed a personal guarantee, do not have joint account with the business, and the business doesn’t violate any state laws or default on its taxes.
2.Corporations can deduct business-operating losses without restrictions.
3.Corporations can split income with shareholders to lower the overall taxes. This method is referred to as income shifting.
4.Medical and life insurance, education, childcare, retirement plans, travel, entertainment, and other benefits are deductible and tax free to the employees. In most States, these advantages apply even if the corporation has only one employee.
5.Businesses owned by sole proprietors are subject to frequent IRS audits whereas this is rare with a corporation.
6.Corporations enable people to accumulate assets and wealth at corporate tax rates, which are considerably lower than individual tax rates.
7.A corporation continues to exist despite the death, withdrawal, or bankruptcy of one of its shareholders.
8. A corporation offers financial flexibility making it easier to run a business. It can easily raise capital by issuing stocks and bonds.
9. Shareholders in a C corporation can transfer or sell shares without restrictions.
10. A corporation can obtain credit without a personal guarantee. The development of business credit is another benefit of incorporating.
It is simple to dissolve a company if there are no out standing debts in its name. Several States like Nevada do not tax Corporations, which makes incorporating more appealing to people.
Because of the benefits provided to the companies opting for incorporation, even small businesses with just one employee are incorporating. The benefits offered through incorporation have lured many businesses to incorporate. Small business owners enjoy the ability to separate their personal assets from the business.
Several companies offer Do It Yourself (DIY) corporate kit software packages, which help small business owners to incorporate without much difficulty.
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their
web site smallbusinessconsultingdotcom