Business Incorporation Benefits
When setting up a business, you should seriously consider setting up a corporation rather than a partnership or a sole proprietorship. With the latter juridical entities, the investors usually suffer financially if their venture fails and the business could not pay the creditors; the creditors can and will seek payment from the proprietors or partners of the business. In the case of corporations, the business is given a legal identity that's distinct from those of the shareholders and investors in the company. Thus, if the corporation folds, the corporation alone (including all assets and all capital invested in it) become liable for liquidation so that the corporation's debts can be paid. Through business incorporation, therefore, your personal liabilities can be limited.
Tax Benefits
Apart from the abovementioned benefit (which also happens to be the primary benefit of incorporating your business), incorporation may also lead to tax advantages. Typically, the rate of taxes levied on corporations is lower than that which is charged on personal income. Thus, you may be able to save a lot on taxes if you design your corporation's structure correctly.
Stability Corporations are usually more stable - and are perceived to be more stable - than sole proprietorships and partnerships. This is due to the fact that the business can survive even if the original investors of the corporation have moved on or have passed away. In either scenario, the stocks usually just change hands and the business lives on or continues to operate. Thus, a corporation can create long-term plans that can continue to be in effect long after the original formulators of the plan have gone. The perception that corporations are more stable, furthermore, gives corporations credibility in the business and financial world. Thus, corporations are in a better position to apply and get approved for loans. More and Better Financial Options If a corporation gets strapped for cash, it can raise capital by making the company public and issuing shares or bonds. This, of course, is only an option if the articles of incorporation do not prohibit it. Sole proprietorships and partnerships, on the other hand, have no such recourse. Owners of such businesses must obtain business loans to resolve cash flow problems. When it comes to loans, moreover, corporations are usually better off than sole proprietorships and partnerships. As indicated above, corporations are perceived to be stable so that banks and financial institutions usually deem corporations to be low-risk bets. The same thing cannot be said of sole proprietorships and partnerships. The fact that corporations have more and better financial options means that corporations can survive the occasional cash flow problems; they can wait for the expected returns on investments to show up in their books.
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