The reasons to incorporate your business
Do you know the reasons to incorporate your business? A corporation means a body or a legal person when it comes to the law.
The reasons to incorporate your business help business owners understand why they should do that. Corporations can buy and sell property, bring lawsuits, and do many other things.
Reasons to incorporate your business
With a corporation, you can protect yourself from lawsuits, corporate obligations, and debts. We often consider a corporation as an artificially developed legal entity.
It exists different and separate from the business owners who created it. You can incorporate a business by filing an application.
You will fill in record facts that include:
- the purpose of the intended corporation,
- the names and addresses of the incorporators,
- the amount and types of capital stock the corporation will be authorized to issue, and
- the rights and privileges of the holders of each class of stock.
Why must you incorporate?
We know that running a corporation can come with drawbacks in some situations; it has more reasons to incorporate your business.
Extra tax burden and updating your records are some of the things that come with running a corporation.
Aside from the tax burden, incorporating your business means that the shareholder is not legally liable for the actions of the corporation.
The reason for this is because the corporation offer a separate existence apart from the people handling it. Why are the reasons to incorporate your business important?
The smart reasons to incorporate your business
Unlimited life. When it comes to incorporating your business, it offers business owners an unlimited life. Unlike partnerships and proprietorships, a corporation does not depend on individuals.
It runs without stopping, which means that it can operate indefinitely until business goals or objectives are met. Merging with other businesses or suffering bankrupt can only stop this type of business.
Transferability of shares. One of the reasons to incorporate your business is that shares are transferable. You can sell, transfer, or give your shares to other people.
However, the process of incorporating tour business can be costly and cumbersome. While it can be challenging to divest ownership in partnership and proprietorship, a corporation is easier to handle.
With corporations, shares decide what happens to the power of an individual. It allows efficient and quick transfer of shares.
That is one of the reasons to incorporate your business. You have the liberty to sell off your shares and travel the world.
Ability to raise investment capital. You can easily raise investment capital if you are operating a corporation.
You can attract new investors, transfer sales of stock, and offer shares to the public.
Advantages and reasons to incorporate your business
- The owners of the business are protected from personal liability from the company’s debts and obligations.
- Corporations offer a reliable body of legal precedent to help managers and guide them in doing the right thing.
- Corporations have become the best vehicle for eventual public companies.
- Corporations can more easily raise capital through the sale of securities.
- Corporations can easily transfer ownership through the transfer of securities.
- Corporations offer owners and shareholders an unlimited life.
- With a corporation, tax benefits can be created under some circumstances. However, corporations can create tax benefits under some situations.
C corporations may be subject to “double taxation” on profits. How do you avoid this situation? You should elect people to operate their corporations under subchapter S of the Internal Code.
As an S corporation, this entity allows income to pass through to the individual shareholders.
Disadvantages of Incorporating
- Corporations require annual meetings and require owners and directors to observe certain formalities.
- Corporations are more expensive to set up than partnerships and sole proprietorships.
- Corporations require periodic filings with the state and annual fees.