The Benefits of Incorporating
Incorporating your business offers a unique mix of benefits, many of which are unavailable to informal business structures such as sole proprietorships and general partnerships. If you are looking for tax flexibility, limited liability, and the option to raise capital, incorporation may be the best path for you. The following are four of the major benefits of incorporation:
- Increased Credibility
- Tax Benefits
- Asset Protection
- Perpetual lifespan
Being recognized as a corporation proves to creditors and potential clients that your business is organized according to state law. By simply adding “Inc” or “LLC” to the end of your business name gives you the professional look and credibility that many customers are looking for.
Corporation owners are able to deduct many more expenses than those who own informal businesses. These write-offs can be substantial since insurance, travel, and entertainment are deductions. Corporation owners are also free from paying certain self-employment taxes, which informal business owners must pay.
In the event that a corporation becomes unable to pay its debts, the owners are given limited liability status. This means that their personal funds or assets cannot be collected in order to pay business debts. In the event legal proceedings are brought against the corporation, the owners’ personal assets are protected.
If your business is incorporated, it will not be forced to dissolve due to changes in ownership. The transfer of ownership is typically accomplished through the simple sale of common or unrestricted preferred stock or by membership interest transfers. Informal business structures are not perpetual entities, so in the event that an owner dies or wants to sell, the business typically ceases to exist in its current form. Being a perpetual entity makes it easier for incorporated businesses to get bank loans and to attract investors.