Case Study: My Experience With Tips

May 6, 2018 Off By Fred

Benefits of Forming a Corporation

If you are ready to start your business, you may be wondering whether or not to form a corporation. Many people incorrectly assume that forming a corporation takes a lot of time and is too expensive. However, the truth is that this business entity is not difficult to set up.

Comparing the benefit of a corporation to the perceived disadvantages, it is clear that the entity is beneficial in many ways. In many cases, the benefits of a corporation are not available to general partnerships and sole proprietorships. Here are some reasons why you should consider forming a corporation:

Protect Your Assets from Liability
The members that own a corporation are referred to as the owners. One of the main benefits of a corporation is that its shareholders have limited liability protection. This means that the shareholders of the corporation are not responsible for liabilities or debts of the business. Therefore, in case of judgments, creditors cannot seize the shareholders’ personal assets such as cars, houses, and others to pay the business debts.

On the other hand, partnerships and sole proprietorships do not offer limited liability protection. In such a case, the personal property of the owners of the business can be attached to the company and auctioned to recover debts.

Tax Benefits
Another benefit of forming a corporation is to gain tax advantages. Shareholders of a corporation have a wide range of tax deductible options. For example, any payments made for expenses such as life insurance may be tax deductible. Owners also benefit from savings on self-employment taxes.

To better understand all the tax benefits of opening a corporation, you should consult a qualified tax accountant.

Make Your Business More Credible
When you open a new business, most potential customers will be wary of doing business with you if you have a sole proprietorship. Most people do not consider sole proprietorships to be serious businesses. When it comes to doing business, prospective clients would want to know that they are working with a legal, established company. When you have a corporation, closing customers for your products or services will be easier.

Continuity of the Business
A corporate may be managed by stakeholders, but does not depend on their owners. A corporation has the ability to continue operations even when the shareholding positions change. For example, even when some shareholder pass on or decide that they no longer want to be part of the corporation, the business’ operations will still continue. On the flip side, with a sole proprietorship, the business will come to a close when the owner withdraws their interest.

Transfer of Ownership if Easy
It is also easy to transfer ownership of a corporation. The structures and operations agreement indicate the steps to be followed to transfer ownership of a corporation. However, the rules of transferring an S corporation are restricted. You should discuss with an attorney to know the ownership issues that may arise with a corporation.

The above are the main reasons why you should start a corporation.

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