The decision to Incorporate your business is usually made when the benefits of Incorporating outweigh the relatively minor costs and administrative hurdles of setting up and running the corporation.
Incorporate your business for:
- Liability Protection
- Tax Savings
- Business Credibility
- Ease of Raising Capital
- Prestige for the Corporate Officers
- Perpetual Duration
- Simple Transfer of Ownership
- Centralized Management
- Privacy (The “Corporate Veil”)
Liability Protection
Incorporate your business for increased protection. In order to enjoy maximum liability protection from lawsuits, the company or corporation must be established, operated, and maintained properly, with all of the “operating formalities” properly implemented and adhered to. Protection is not automatic. Legal protection is only enjoyed by a company that has been formed precisely according to legal statute. This liability protection provides a buffer between the legal obligations of the business, and the shareholder’s personal assets. Since the shareholders are not personally responsible for the corporation’s obligations (let’s remember that the corporation, once properly formed and run, is now considered a separate entity), they can be protected from corporate litigation. Thus, if the company is involved in a lawsuit, the shareholders’ personal homes or assets would not be at risk.
Let’s cite an example: John Smith owned a small construction company in Riverside, California. He was concerned about lawsuits stemming from construction liability, so he formed a corporation. Because John was advised that a corporation is a separate entity from the people who own it, the owners, or “shareholders” are shielded personally from business-related lawsuits. So when one of John’s employees was careless and fell from the roof and broke his arm, the liability was limited to the corporation. John’s personal assets, his home, cars, and savings, were safe and secure from any judgment or settlement rendered against his corporation. Without the benefit of the protection offered by the corporation, John’s business liability potentially exposed his house, cars, and savings accounts to a lawsuit.
Tax Savings
Incorporate your business for tax benefits. There are substantial advantages, and savings, available to an incorporated business. For example, Brian Smith., the owner of a web design company in Minneapolis, used to pay income tax on any profit that his company showed. This “post tax” income was then used to cover his expenses, to add to his savings account, and provide for his discretionary spending. He was spending a lot of “post-tax” money. After learning of the benefits of incorporating his business, he now socks away tens of thousands of dollars per year in his corporate pension fund. The money is contributed tax free and grows tax free until his retirement. This option was not available to him before he incorporated. He also writes off all of his medical expenses, including prescriptions, through his corporation, and he is able to write off 100% of his insurance premiums versus the mere 30% write-off available to partnerships or sole proprietorships. He even leases a company car and writes the check every month from his corporate bank account. These are just a glimpse of the types of advantages available by establishing your company as a corporation.
Another tax-saving strategy is called “income shifting.” Income shifting allows for the income of a company to be strategically divided between the shareholders and the company in a manner that allows the overall taxes to be minimized.
Additionally, a corporation with under $3 million in gross revenue is one of the least audited business types. Conversely, the most audited business form is the “Schedule C” self- employment income form.
Credibility
Credibility is another benefit afforded to a company that is incorporated. Customers and other businesses usually feel more secure engaging in transactions with a corporate legal entity because it instills a feeling of confidence in the company. For investors in and lenders to a business, it gives them knowledge that their investment assets are afforded better legal protections. A corporation can also have a credit rating of its own regardless of the credit ratings of the owners or shareholders. The steps and process by which a business must go through to incorporate shows the customer that the company that has secured the “Inc.” after their company name has demonstrated their desire to be a long-standing business in the marketplace.
Raising Capital
Incorporate your business for investment opportunities. Whereas sole proprietorships and standard partnerships are limited as to how they can raise capital for their business, a corporation can raise capital through the selling of corporate stock, or interest, in the company. Investors are more readily attracted to a business opportunity where their exposure to liability is at a minimum. Investors typically want a maximum return on their investment with as little liability as possible. If something goes wrong and lawsuits are filed, they want to know that their home and personal accounts are not vulnerable to attack. Many banks want a business to be incorporated before providing a small business loan.
Prestige for the Corporate Officers
Having “CEO” or “President” after one’s name, along with the “Inc.” after one’s business name on a business card, may open doors and provide opportunities that would not be available otherwise. Associating with other successful businesspeople may expose one to business ideas that may have a positive financial impact. Moreover, potential clients may be more amenable to hearing the sales presentation or business proposal if it comes from the “CEO” rather than merely the sole proprietor.
Another example: N. Jorgensen formerly sold credit card merchant account services to start-up businesses. Without a corporate title of his own, he was usually met with resistance when he called upon potential clients. Then he got smart: “…this is N. Jorgensen, CEO of Card Processing Corporation…” has multiplied his ability to reach decision-makers, and thus greatly enhanced his bottom-line profit. The fact that he had a title to match his newly incorporated status was the leverage he needed to get through to the decision makers.
Perpetual Duration
The incorporated business has perpetual duration unless stated otherwise in the articles of incorporation. This unlimited life allows the company to continue to exist and conduct business, even following the untimely death of an owner, or the decision by individual owners to sell their interest in the company. Wal-Mart and the Ford Motor Company, for example, have passed legacies on to family members which should continue for many generations.
Simple Transfer of the Ownership
An incorporated company can quickly transfer ownership and the operational control of the business. This controlling stake can be transferred either in whole, or in part, usually by the sale or transfer of company stock. The transfer of the ownership is typically a private, internal matter and does not typically a public filing.
Centralized Management
The centralized management found in incorporated businesses aids corporate communication during transactions by making the process more efficient than mere partnerships. When it comes to binding agreements and high-stakes business decisions, this communication allows decisions and agreements to be made with input from one person or major parties involved with the company. This differs from a partnership, where the major decisions are typically made by each partner, with a consensus needed for most of these decisions.
Privacy
Incorporate your business to provide anonymity to the shareholders, directors, officers, and owners of the company or corporation. This anonymity is subject to the local laws of the state in which the business is incorporated, but it usually means that an incorporated business can allow an individual to run, manage, and own the business without their name appearing on public record. Shareholder names do not typically appear in the public records. Nominee officer and director service, where someone other than the shareholders appears on the officer list is a service that is available in several states. This allows for the individual owner to be afforded anonymity, unlike a sole proprietorship or partnership.
These are just some of the factors and benefits to consider when deciding to take that leap and incorporate your business. Though every situation differs, incorporating your business is the next logical step if any of the above-mentioned considerations are of value to you. You can start the process now by clicking one of the order buttons on this page.
Other Considerations
There are other factors that should be taken into consideration when incorporating These include the fact that there are local state and federal requirements that need to be met, the need to be created in compliance with the general corporation law of the government in which the business is incorporated, the filing of the required articles of incorporation with the correct state office, and the paying of the federal and state taxes and fees, along with any business license fees imposed by the local government. Companies Incorporated can incorporate your business quickly and easily. There are also certain easy “corporate formalities” (described at length elsewhere on this site) that must be observed within the corporate business model. The corporation must be operated with a management structure that includes the corporate officers, and a board of directors. This can typically be one person holding all positions. Please be sure to read our very through descriptions of these duties that comes with your package, and see how we can simplify the entire process so that you and your company can start enjoying the benefits of incorporation immediately.
