One of the thinks you will have to determine when you decide to start a business is what type of entity to form. Most people avoid forming a corporation because they think it is too expensive or time-consuming. However, the truth is that this business entity is not difficult to set up.
The benefits of forming a corporation make it an obvious choice for many entrepreneurs. 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. When you have a corporation, you will benefit from limited liability protection. This means that the shareholders of the corporation are not responsible for liabilities or debts of the business. Should the business be sued, the creditors cannot go after the personal property of the shareholders.
On the other hand, in a general partnership or a sole proprietorship, the owners of the business are considered to be part of it. Therefore, their personal assets can be seized in case of outstanding debts.
There are various tax benefits you can take advantage of when you have a corporation. There are various tax deductible options shareholders of corporations have. For example, any payments made for expenses such as life insurance may be tax deductible. Owners also benefit from savings on self-employment taxes.
Consult a tax consultant to help you understand all the tax benefits of operating a corporation.
Get Credibility for Your Business
When you open a new business, most potential customers will be wary of doing business with you if you have a sole proprietorship. For most people, a sole proprietorship seems like a hobby rather than a serious business. 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.
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. What this means is that if an owner wishes to withdraw from the corporation or passes on, the corporation will continue to exist. This is unlike the case with a sole proprietorship where the withdrawal of a partner means closing of the business.
Transfer of Ownership if Easy
Transferring ownership of a corporation is also possible. The structures and operations agreement indicate the steps to be followed to transfer ownership of a corporation. However, S corporations have special transfer rules. Your attorney can help you understand the transfer options available for the type of corporation you would like.
The above are some reasons why you should consider forming a corporation.