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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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