If you are running a sole proprietorship or want to start a business, you may be wondering what the benefits of forming a corporation are. Many people think that forming an S or C corporation takes a lot of time and is time-consuming. 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. Most of the benefits that a corporation is entitled to cannot be enjoyed by owners running sole proprietorships or partnerships. Some of the benefits of incorporation include:
Limited Liability Protection
The owners of a corporation are known as shareholders. 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. Therefore, their personal assets can be seized in case of outstanding debts.
Take Advantage of Tax Cuts
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.
An accountant can help you understand the various tax benefits you can take advantage of when you open a corporation.
Get Credibility for Your Business
In most industries, clients prefer working with corporations rather than partnerships or sole proprietorships. 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. Having a corporation is one of the ways you can make customers feel at ease with doing business with your company.
Continuity of the Business
While shareholders own a corporation, its operations does not depend on them. 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, a sole proprietorship will wind up operations when the owner passes on.
Ease of Transfer
Transferring a corporation is easy. The company’s operation agreement outlines what should be done when there is need to transfer ownership. However, there are special restrictions for S corporations. Your attorney can help you understand the transfer options available for the type of corporation you would like.
The above are the main reasons why you should start a corporation.