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 incorrectly assume that forming a corporation takes a lot of time and is too expensive. However, nothing could be further from the truth.
The benefits of forming a corporation make it an obvious choice for many entrepreneurs. People running partnerships or sole proprietorships are not entitled to many of the advantages that a corporation has. Here are some reasons why you should consider forming a corporation:
Protection of Your Personal Assets
The owners of a corporation are known as shareholders. One of the main benefits of a corporation is that its shareholders have limited liability protection. Therefore, in case the business has any debts or liabilities, the owners will not be held liable for them. 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. Therefore, their personal assets can be seized in case of outstanding debts.
You can also form a corporation to benefit from various tax options. There are various tax deductible options shareholders of corporations have. For example, shareholders are allowed to claim tax deductions for expenses such as life insurance. Owners also benefit from savings on self-employment taxes.
To better understand all the tax benefits of opening a corporation, you should consult a qualified tax accountant.
Get Credibility for Your Business
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 buying products or services, most people do not consider sole proprietorships to be serious entities. When you have a corporation, closing customers for your products or services will be easier.
While shareholders own a corporation, its operations does not depend on them. One of the features of a corporation is that it has unlimited life. What this means is that if an owner wishes to withdraw from the corporation or passes on, the corporation will continue to exist. On the flip side, a sole proprietorship will wind up operations when the owner passes on.
Transfer of Ownership if Easy
Transferring ownership of a corporation is also possible. 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. Contact a business attorney to find out about the transfer options of a corporation.
The above are some reasons why you should consider forming a corporation.