On Tips: My Rationale Explained

5 Reasons Why You Should Form a Corporation

One of the thinks you will have to determine when you decide to start a business is what type of entity to form. Many people think that forming an S or C corporation takes a lot of time and is time-consuming. However, neither of these is the case.

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. Below are five of the main benefits of a corporation.

Limited Liability Protection
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 company be sued, the creditors cannot attach the personal property of the shareholders to any activities meant to recover the debts.

On the other hand, in a general partnership or a sole proprietorship, the owners of the business are considered to be part of it. In such a case, the personal property of the owners of the business can be attached to the company and auctioned to recover debts.

Take Advantage of Tax Cuts
Another benefit of forming a corporation is to gain tax advantages. The owners of a corporation are entitled to a number of tax cuts. For example, shareholders are allowed to claim tax deductions for expenses such as life insurance. 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.

Establish Credibility
Many company prefer doing business with other companies rather than sole proprietorships. Majority of clients will not take you seriously if you are running a sole proprietorship. 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
A corporate may be managed by stakeholders, but does not depend on their owners. Even when there are changes in the shareholder agreements, a corporation can continue operations. 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. 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
It is also easy to transfer ownership of a corporation. The company’s operation agreement outlines what should be done when there is need to transfer ownership. However, the rules of transferring an S corporation are restricted. 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.

The Path To Finding Better Businesses

A Quick Overlook of Experts – Your Cheatsheet