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. 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. Here are some reasons why you should consider forming a corporation:
Protect Your Assets from Liability
“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. Should the business be sued, the creditors cannot go after the personal property of the shareholders.
On the flipside, if you have a partnership or sole proprietorship, your personal property is attached to the business. 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
You can also form a corporation to benefit from various tax options. 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. There are also tax deductions on self-employment taxes.
To better understand all the tax benefits of opening a corporation, you should consult a qualified tax accountant.
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.
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. This is unlike the case with a sole proprietorship where the withdrawal of a partner means closing of the business.
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, there are special restrictions for S corporations. Contact a business attorney to find out about the transfer options of a corporation.
The above are five benefits of forming a corporation.