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, the truth is that this business entity is not difficult to set up.
The benefits of a corporation far outweigh the perceived cons. 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.
Protect Your Assets from Liability
The members that own a corporation are referred to as the owners. A corporation offers its owners 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 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.
There are various tax benefits you can take advantage of when you have a corporation. The owners of a corporation are entitled to a number of tax cuts. For example, tax deductibility applies to expenses such as life insurance. Self-employment taxes also attract various tax deductions.
To better understand all the tax benefits of opening a corporation, you should consult a qualified tax accountant.
Make Your Business More Credible
Many company prefer doing business with other companies rather than sole proprietorships. For most people, a sole proprietorship seems like a hobby rather than a serious business. Customers want to feel that they are working with a credible business. Having a corporation is one of the ways you can make customers feel at ease with doing business with your company.
Continuity of the Business
While shareholders own a corporation, its operations does not depend on them. Even when there are changes in the shareholder agreements, a corporation can continue operations. 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. On the flip side, a sole proprietorship will wind up operations when the owner passes on.
Ease of Transfer
Transferring ownership of a corporation is also possible. 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. Your attorney can help you understand the transfer options available for the type of corporation you would like.
The above are the main reasons why you should start a corporation.