Benefits of incorporating

The benefits of a corporation include easy access to raising capital for a new business and personal liability protection. A primary advantage of a corporation is that it protects investors from the liabilities of a company.

There are plenty of benefits that come with incorporating a business, including advantages related to real estate, liability protection, and contracts. That said, there are also downsides that should be considered, such as the necessity of annual reports and tax obligations. When you’re ready to incorporate your business, please contact our business incorporation attorney for a free consultation.

8 Benefits to Starting a Corporation

Incorporation comes with many benefits that affect both the company itself and its owner. By forming a corporation, a business owner can achieve the following:

Limited liability protection. One of the primary benefits of forming a corporation is limited liability protection. This means that the business’ owners are shielded from the business’ debts and are not personally responsible for them. In essence, creditors cannot go after the business owner’s car or house to pay off debts belonging to the corporation. It should be noted that limited liability companies (LLCs) also offer limited liability protection. By contrast, partnerships and sole proprietorships do not offer this protection.
Tax savings. The tax benefit of incorporation is that business income, as well as many tax deductions, credits, and losses, are passed through to the owners, rather than being taxed at the corporate level. This means the company may write off health and life insurance premiums, as well as savings on self-employment taxes. There may be further tax savings if the corporate tax rate is less than the personal rate; alternatively, if the company does not give income to shareholders.
Perpetual business existence. Having perpetual existence has numerous benefits for a corporation. The perpetual existence business definition means a company can make contracts, hold property, accept investments, maintain liability, and be sued regardless of ownership changes. The primary benefit of perpetual existence, sometimes to referred to as “,” for a corporation is that shareholders and investors know that the company will not simply disappear due to unforeseen circumstances.
Easy to raise capital. Incorporating can also make it easier to raise capital for your business. Corporations can issue stock shares to raise capital, which makes it easier for corporations to raise capital. When you’re considering raising money through investment or borrowing, a corporation can make finding and getting the money easier. The benefit of raising equity capital is that, unlike debt capital, the company is not required to repay shareholder investment.
Easy to transfer ownership. Incorporating a business provides an excellent vehicle for transferring ownership: Ownership may be transferred by an exchange of assets for stock. When you transfer stock ownership to another person, you transfer ownership in the company.
Potential anonymity. If an individual does not want their participation in a business to be known, then incorporation can shield their identity. The anonymous structure enables you to hide company ownership known as shareholders.

What are the main disadvantages of the corporate form?

If a business owner is considering incorporating their business, the above benefits are certainly attractive. However, it is wise to also review the potential disadvantages of incorporating. These include the following.

Double taxation

C corporations receive double taxation when corporate profits are distributed as dividends. A corporation must first report and tax company profits. Shareholders must report whatever leftover profits they receive in the form of dividends as personal income so that they are taxed accordingly.

A company may choose to be classified as an S corporation, a unique tax status, which avoids this disadvantage.

Continuous fees

A business owner needs to file Articles of Incorporation with their state. Depending on the state, there are various fees involved. A number of states have ongoing fees that are greater for a corporation than for a partnership or a sole proprietorship.

Observing formalities

There are certain record keeping requirements that corporations must follow, including:

Distributing stock to shareholders
Adopting bylaws
Holding annual meetings
Recording meeting minutes
Electing directors

Limited liability companies, partnerships, and sole proprietorships do not have such requirements.

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