Seven Advantages to Incorporating
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There's no question that hard work and a little luck is what it takes to
BE successful. But a little knowledge, especially when it comes to setting up
your business, will help you STAY successful.
While many business owners give a lot of thought to location, store décor,
customer service, hiring employees and management issues (and rightly so);
choosing the proper business structure (such as sole proprietor, partnership,
corporation, limited liability company) doesn't get the attention it deserves.
Many entrepreneurs don't realize this, but the business form they choose can
often times be the difference between success and failure, especially in today's
competitive and litigious marketplace. If you want to succeed, you need all the
advantages you can get. High on the list of safe bets is the corporate form of
Incorporating, while definitely not for everybody, offers several distinct
and money-saving advantages over the other types of entities. Here are seven of
Asset Protection - If you operate as a sole proprietor or partnership,
there is virtually unlimited personal liability for business debts or lawsuits.
In other words should you go out of business or be a defendant in a lawsuit,
your personal assets such as homes, jewellery, vehicles, savings, etc. are up
for grabs. This is generally NOT the case when you incorporate. When you
incorporate you are only responsible for your investment in the corporation. The
limited liability feature of a corporation, while not a guarantee, is DEFINITELY
one of the most attractive reasons for incorporating.
Easier To Sell - Corporations are generally much easier to sell and
are usually more attractive to buyers than either a sole proprietorship or
partnership. The reason for this is because a new buyer will not be personally
liable for any wrongdoings on the part of the previous owners. If someone buys a
sole proprietorship, for example, the new owner can be held personally liable
for any mistakes or illegalities on the part of the prior owner…even if the new
owner had NOTHING to do with the situation! This is usually NOT the case with a
Tax Savings - When you incorporate there are numerous tax advantages
at your disposal that are virtually impossible to accomplish with other business
entities. When you incorporate you create a separate and distinct legal entity.
Because of this, there are many transactions that you can structure between you
and your corporation to save big money on taxes. For instance, if you own a
building you can rent office facilities to your corporation and claim
depreciation and other deductions for it. Your corporation can then claim the
rental expense. You are prohibited from doing this if you are a sole proprietor
or a partner in a partnership.
Privacy and Confidentiality - The corporate form of business is a
great way to keep your identity and business affairs private and confidential.
If you want to start a business, but would like to remain anonymous, a
corporation is the best way to accomplish this. States such as Nevada offer even
more privacy protection for corporations and their shareholders.
Easier to Raise Capital - When you're looking to raise money through
investment or borrowing, a corporation can actually make finding and getting the
money you need easier. If you want to take on investors you simply sell shares
of stock. If you want to borrow, a corporation can add clout when dealing with
banks or other lending institutions.
Perpetuity - As I mentioned in #3, when you incorporate you create a
separate and distinct legal entity. This separate and distinct entity (the
corporation) can endure almost forever irrespective of what happens to the
shareholders, directors, or officers. This is NOT the case with sole
proprietorships, partnerships or even limited liability companies. For example,
if an owner, partner, or member dies the business AUTOMATICALLY ends or gets
wrapped up in legal red tape. Corporations, on the other hand, have unlimited
Increases Credibility - Let's face it. Most people feel more secure
and confident dealing with a corporation as opposed to a sole proprietorship.
Having INC. or CORP. after your company's name adds a touch of professionalism
and credibility to your business dealings.
As always, be sure to consult with your attorney or business advisor before
undertaking any important legal or financial decision. While there are many
advantages and money-saving reasons to incorporate, as I've said before, it's
not for everybody. However, you do owe it to yourself to find out more.
About the Author
Alex Goumakos is a CPA, business advisor and guest consultant of Active
Filings LLC, a professional incorporating company that provides services in all
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Article Published/Sorted/Amended on Scopulus 2007-03-13 13:53:38 in Business Articles