The Essential Laws of Businesses Explained

03/05/2018 Foods & Culinary

5 Reasons Why You Should Form a Corporation

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. Many people think that forming an S or C corporation takes a lot of time and is time-consuming. However, nothing could be further from the truth.

Comparing the benefit of a corporation to the perceived disadvantages, it is clear that the entity is beneficial in many ways. In many cases, the benefits of a corporation are not available to general partnerships and sole proprietorships. Below are five of the main benefits of a corporation.

Limited Liability Protection
The owners of a corporation are known as shareholders. A corporation offers its owners limited liability protection. This means that the shareholders of the corporation are not responsible for liabilities or debts of the business. 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. With these businesses, the owners’ personal property can be seized in case of debts.

Tax Advantages
You can also form a corporation to benefit from various tax options. The owners of a corporation are entitled to a number of tax cuts. For example, any payments made for expenses such as life insurance may be tax deductible. Self-employment taxes also attract various tax deductions.

Consult a tax consultant to help you understand all the tax benefits of operating a corporation.

Establish Credibility
In most industries, clients prefer working with corporations rather than partnerships or sole proprietorships. For most people, a sole proprietorship seems like a hobby rather than a serious business. When it comes to buying products or services, most people do not consider sole proprietorships to be serious entities. Having a corporation is one of the ways you can make customers feel at ease with doing business with your company.

Unlimited Life
The operations of a corporation do not depend on the shareholders. Even when there are changes in the shareholder agreements, a corporation can continue operations. What this means is that if an owner wishes to withdraw from the corporation or passes on, the corporation will continue to exist. This is unlike the case with a sole proprietorship where the withdrawal of a partner means closing of the business.

Transfer of Ownership if Easy
Transferring a corporation is easy. The structures and operations agreement indicate the steps to be followed to transfer ownership of a corporation. However, there are special restrictions for S corporations. You should discuss with an attorney to know the ownership issues that may arise with a corporation.

The above are some reasons why you should consider forming a corporation.

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