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, nothing could be further from the truth.
The benefits of a corporation far outweigh the perceived cons. 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
“Shareholders” refers to the members that own a corporation. When you have a corporation, you will benefit from limited liability protection. Therefore, any debts that the business has are not tied to the owners. 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
There are various tax benefits you can take advantage of when you have a corporation. Shareholders of a corporation have a wide range of tax deductible options. For example, shareholders are allowed to claim tax deductions for expenses such as life insurance. Self-employment taxes also attract various tax deductions.
An accountant can help you understand the various tax benefits you can take advantage of when you open a corporation.
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. 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. Even when there are changes in the shareholder agreements, a corporation can continue operations. For example, if some owners of the corporation decided to withdraw their interest, the business will continue functioning. On the flip side, with a sole proprietorship, the business will come to a close when the owner withdraws their interest.
Easy Transfer of Ownership
It is also easy to transfer ownership of a corporation. The ownership information is provided for in the articles of operation of the company. 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 the main reasons why you should start a corporation.