Forming a corporation is an important step for small business owners, and taking this step has many possible benefits for the business and its owners (who are also called shareholders). These benefits are, in many cases, unavailable to sole proprietorships and general partnerships. Listed below are some Incorporation benefits.
Corporations provide limited liability protection to its owners. Typically, the owners are not personally responsible for the debts and liabilities of the business; thus, creditors cannot pursue owners’ personal assets (such as a house or car) to pay business debts.
Corporations often gain tax advantages such as: the deductibility of health insurance premiums paid on behalf of an owner-employee; savings on self-employment taxes, as corporate income is not subject to Social Security, Workers Compensation and herbs are taxes; and the deductibility of other expenses such as life insurance.
Incorporating may help a new business establish credibility with potential customers, employees, vendors, and partners.
A corporation’s life is not dependent upon its owners. A corporation possesses the feature of unlimited life, meaning if an owner dies or wishes to sell his or her interest, the corporation will continue to exist and do business.
Transferability of Ownership:
Ownership in a corporation is typically easily transferable. (However, there are restrictions on S corporation ownership.)
Capital can be raised more easily through the sale of stock. Additionally, many banks, when providing a small business loan, want the borrower to be an incorporated business.
Retirement funds and qualified retirements plans, such as a 401(k), may be established more easily.