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Many entrepreneurs don't
realize this, but the business form they choose can often times be the
difference between success and failure, especially in today's
competitive and litigious marketplace. If you want to succeed, you need
all the advantages you can get. High on the list of safe bets is the
corporate form of business.
Incorporating, while
definitely not for everybody, offers several distinct and money-saving
advantages over the other types of entities. Here are seven of those
advantages:
Asset Protection - If
you operate as a sole proprietor or partnership, there is virtually
unlimited personal liability for business debts or lawsuits. In other
words should you go out of business or be a defendant in a lawsuit, your
personal assets such as homes, jewelry, vehicles, savings, etc. are up
for grabs. This is generally NOT the case when you incorporate. When you
incorporate you are only responsible for your investment in the
corporation. The limited liability feature of a corporation, while not a
guarantee, is DEFINITELY one of the most attractive reasons for
incorporating.
Easier To Sell -
Corporations are generally much easier to sell and are usually more
attractive to buyers than either a sole proprietorship or partnership.
The reason for this is because a new buyer will not be personally liable
for any wrongdoings on the part of the previous owners. If someone buys
a sole proprietorship, for example, the new owner can be held personally
liable for any mistakes or illegalities on the part of the prior
owner…even if the new owner had NOTHING to do with the situation! This
is usually NOT the case with a corporation.
Tax Savings - When you
incorporate there are numerous tax advantages at your disposal that are
virtually impossible to accomplish with other business entities. When
you incorporate you create a separate and distinct legal entity. Because
of this, there are many transactions that you can structure between you
and your corporation to save big money on taxes. For instance, if you
own a building you can rent office facilities to your corporation and
claim depreciation and other deductions for it. Your corporation can
then claim the rental expense. You are prohibited from doing this if you
are a sole proprietor or a partner in a partnership.
Privacy and
Confidentiality - The corporate form of business is a great way to keep
your identity and business affairs private and confidential. If you want
to start a business, but would like to remain anonymous, a corporation
is the best way to accomplish this. States such as Nevada offer even
more privacy protection for corporations and their shareholders.
Easier to Raise Capital
- When you're looking to raise money through investment or borrowing, a
corporation can actually make finding and getting the money you need
easier. If you want to take on investors you simply sell shares of
stock. If you want to borrow, a corporation can add clout when dealing
with banks or other lending institutions.
Perpetuity - As I
mentioned in #3, when you incorporate you create a separate and distinct
legal entity. This separate and distinct entity (the corporation) can
endure almost forever irrespective of what happens to the shareholders,
directors, or officers. This is NOT the case with sole proprietorships,
partnerships or even limited liability companies. For example, if an
owner, partner, or member dies the business AUTOMATICALLY ends or gets
wrapped up in legal red tape. Corporations, on the other hand, have
unlimited life.
Increases Credibility -
Let's face it. Most people feel more secure and confident dealing with a
corporation as opposed to a sole proprietorship. Having INC. or CORP.
after your company's name adds a touch of professionalism and
credibility to your business dealings.
As always, be sure to
consult with your attorney or business advisor before undertaking any
important legal or financial decision. While there are many advantages
and money-saving reasons to incorporate, as I've said before, it's not
for everybody. However, you do owe it to yourself to find out more.
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