Incorporation benefits include:
Limited Liability - Corporations provide limited liability protection to its owners. Typically, the owners are not personally responsible for the debts and liabilities of the business; thus, creditors cannot pursue owners' personal assets (such as a house or a car) to pay business debts. Conversely, in a sole proprietorship or general partnership, owners and the business are legally considered the same and personal assets can be used to pay business debts.
Tax Advantages - Corporations often gain tax advantages such as: the deductibility of health insurance premiums paid on behalf of an owner-employee; savings on self-employment taxes, as corporate income is not subject to Social Security, Workers Compensation and Medicare taxes; and the deductibility of other expenses such as life insurance. For information on the types of tax advantages your business may gain by forming as a corporation, please speak with one of our accountants or tax advisors. Contact US
Establishing Credibility - Incorporating may help a new business establish credibility with potential customers, employees, vendors, and partners.
Unlimited Life - A corporation's life is not dependent upon its owners. A corporation possesses the feature of unlimited life, meaning if an owner dies or wishes to sell his or her interest, the corporation will continue to exist and do business.
Transferability of Ownership - Ownership in a corporation is typically easily transferable. (However, there are restrictions on S corporation ownership.)
Raising Capital - Capital can be raised more easily through the sale of stock. Additionally, many banks, when providing a small business loan, want the borrower to be an incorporated business.
Retirement plans - Retirement funds and qualified retirements plans, such as a 401(k), may be established more easily.
What is a corporation?
A corporation is a legal entity that can exist separately from its owners. Creation of a corporation occurs when properly completed articles of incorporation (called a charter or certificate of incorporation in some states) are filed with the proper state authority, and all fees are paid.
Do I need an attorney to incorporate?
No, an attorney is not a legal requirement to incorporate. You can use our service to incorporate and save money on attorney fees. However, if you are unsure if incorporation will benefit your business, you may consult our accounting department Contact Us.
What should I name my corporation?
Choose the name of your corporation carefully. It is very important that you portray the image you want for your new corporation. Legally, the name you select must not be "deceptively similar" to any existing corporation or must be "distinguishable on the record" of your state.
For example, if a corporation named Food Corp. exists in your state, you probably would not be allowed to name your business Food, Inc. It is possible that the name you select will not be available; therefore, we ask for a second choice on the incorporation order form.
Additionally, the name you choose must show your business is incorporated. Most states require that the corporate name be followed by some type of indicator, such as Corporation, Incorporated, or an abbreviation.
What are the advantages of incorporation?
One of the primary advantages of incorporation is the limited liability the corporate entity affords its shareholders. Typically, shareholders and directors are not liable for the debts and obligations of the corporation; thus, creditors will not come knocking at the door of a shareholder or director to pay debts of the corporation. In a partnership or sole proprietorship, the owner's personal assets may be used to pay debts of the business. Maintaining the limited liability of a corporation requires that the shareholders and directors follow all the rules of governance, including holding annual meetings and maintaining meeting minutes.
- A corporation's life is not dependent upon its members. A corporation possesses the feature of unlimited life. If an owner dies or wishes to sell his or her interest, the corporation will continue to exist and do business.
- Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation.
- Ownership of a corporation is easily transferable.
- Capital can be raised more easily through the sale of stock.
- A corporation possesses centralized management.
What are the disadvantages of incorporation?
The primary disadvantage to a corporation is double taxation. Profits of a corporation are taxed twice when the profits are distributed to shareholders as dividends. They are taxed first as income to the corporation, then as income to the shareholder. All reasonable business expenses such as salaries are deductions against corporate income and can minimize the double tax. Further, the double tax can be eliminated by making an election to become an S corporation.
- There is more complexity and expense with forming a corporation.
- There are more extensive record keeping requirements.
- Operating a corporation across state lines often requires the corporation to qualify to do business in the other state.
Get your Corporation, LLC, or Not-for-Profit formed faster than ever before