Should You Incorporate Your Business?

When starting a business, you have many choices of how to structure it. Creating a corporation provides certain benefits that can’t be obtained through other common structures.

What is a Corporation?

The Small Business Association defines a corporation as “an independent legal entity owned by shareholders.” In this type of business structure, multiple shareholders have stakes in the company, but the corporation itself is liable for the consequences of all actions taken and debts incurred. This prevents any one person from taking the fall should something go wrong.

To preserve this limited liability, it’s necessary to keep detailed records and perform certain formalities to separate the corporation from the personal finances of everyone involved. Since the responsibilities are split among a group, it’s possible for a corporation to exist indefinitely even if the person who originally started it decides to move on.

Financial Implications of Incorporating

Choosing to incorporate allows you to “go public” and sell shares of your company to raise money. This opens up a ready source of capital that can be used to expand the business over time. It’s the responsibility of those running the company to use this money wisely and give shareholders the returns that they expect.

If you decide that you no longer wish to take part in the company, it’s much easier to sell your shares to someone else than to try to disentangle yourself from a business structure that is tied more closely to your personal assets.

Corporation Tax Basics

Most corporations are known as C corporations and are generally allowed to take more deductions than other types of businesses. However, these companies are subject to being taxed on earnings and taxed again when profits are distributed to shareholders. Small companies may create S corporations and put the responsibility of paying taxes on the shareholders themselves. In either case, all tax laws and regulations apply to the corporate entity rather than to any particular individual.

Creating a corporation and keeping it going involves paperwork and formalities that can be confusing without help from a knowledgeable third party. If you decide that incorporating is the best thing for your company, get in touch with Protection Legal Group for a free consultation. One of our experienced staff members can answer your questions and help you understand the process of incorporation so that your business can get up and running.