There are many benefits of incorporating your business and the most important ones include asset protection through limited liability, corporate identity creation, perpetual life of the company, transferability of ownership, an ability to build credit and raise capital, flexibility with the number of business owners, and tax savings. And best of all, because there are no attorneys’ fees when using Blockcpas services, the cost of incorporating is affordable. Let’s further break down each benefit of starting a corporation.
1. Tax Savings
As a corporation, businesses will pay half of the social security taxes directly from the corporate account instead of paying the entire 15% as self-employment taxes. There are also opportunities to shield income from taxes through a 401k plan (or other retirement mechanisms), a healthcare plan, life insurance, and charitable contributions. While some of these mechanisms have parallels in non-incorporated structures, a corporation has the advantage of structuring benefits through standard organizational plans.
2. Asset Protection Through Limited Liability
A properly formed corporation is recognized as a Separate Legal Entity with its own Federal Tax Identification Number. The corporation is responsible for its liabilities and its debts, but the owners are not.
Example: Let’s say ABC Corporation has $1,000 in corporate assets (cash and computers). Business is slow and there are 12 months of rent remaining on the lease. If ABC Corporation was properly formed, and if the lease was executed by “ABC Corporation”, the landlord will only be able to reach the $1,000 of assets within the corporation. The shareholders (or owners) of the corporation will most likely not be liable for any payments remaining on the lease.
Here, the corporation served its purpose and provided true asset protection for its shareholders.
A sole proprietor (or partner in a Partnership), by contrast, is personally liable for all business obligations. Therefore, the business owner who did not incorporate or form a Limited Liability Company may lose his/her personal assets to satisfy the debts or judgments including their homes, cars, and personal savings and investments. However, any benefits of incorporating may be lost where the business commits fraud, neglects corporate formalities, or comingles assets.
For true asset protection, and to avoid personal liability, most business owners should incorporate a business. A properly operated C Corporation or LLC limits the liability of its shareholders to the amount they invested in the company.
3. Ability to Build Credit and Raise Capital
The ability to raise capital by leveraging the inherent value of a business shouldn’t be underestimated. The historical purpose of a corporation was to form an entity with distributed ownership. In a sense, it is like splitting up the worth of an enterprise into many pieces. Control can be retained by holding on to the majority of shares, while investment capital can be raised by selling other shares.
Investors may be keen to take risks with an offer of partial ownership. The stock then has a real or immediate value as well as a potential value. Many private equity firms will only invest when their money can be backed up by holding stock. This avenue isn’t available to non-corporations.
4. Creation of Corporate Identity
Marketing studies show, that adding an “Incorporated” or “LLC” to the end of a business name provides a sense of credibility and trust. One surefire way to success in business is to conduct your business legitimately and with honesty.
5. Perpetual Life for the Business
A Corporation is a separate legal entity with an existence of its own and a perpetual life. Therefore, the business may continue far beyond this lifetime and into future generations.
Sole proprietorships end upon the death of the owner. A C Corporation, however, continues indefinitely until it is dissolved. Shares of ownership in a corporation can generally be sold, gifted, or bequeathed to others.
6. Transferability of Ownership
A Sole Proprietorship does not have a life apart from its owner and it may not be transferred to a third party. The corporation, however, provides an excellent vehicle for transferring ownership: Ownership may be transferred by an exchange of assets for stock.
7. Flexibility With the Number of Owners
C Corporations and LLCs generally allow for an unlimited number of shareholders (except S-Corporations, which have a limit of 100 shareholders).
8. No Attorneys Fees
In most states, incorporating a business does not require costly attorney fees. In fact, you can visit the state office and file articles of incorporation yourself. That said, there is no replacement for sound legal advice. If you can afford an attorney and you feel you would like advice on what solution is best for your particular circumstances and the additional benefits of incorporating your business, please contact a licensed attorney in your jurisdiction.
For more information about Business incorporation, contact Blockcpas at 647-530-3199 or schedule a meeting https://blockcpas.com/contact