How Incorporating Can Save Your Business!
There comes a time when every business owner must ask themselves, “Should I incorporate?” The answer, as with all things legal, depends on the circumstances. However, knowing the advantages and disadvantages of incorporation is the first step in deciding whether it is the right choice for you – sometimes with important consequences for your business.
There are many benefits of incorporation, but the most important ones for your business will likely be:
- Tax benefits. A corporation is a separate entity from you for tax purposes. Incorporating your business may allow you to save on taxes in several ways. Corporate income tax rates are lower than those paid by sole proprietors or partnerships. Furthermore, by making your wife or children shareholders in your corporation, you may be able to redistribute income from family members in higher tax brackets to those in lower tax brackets. This is a process known as income splitting.
- Ease in raising capital. While corporations can obtain additional capital by taking loans, they also have the ability to issue and sell shares to raise money. However, it is important to note that selling shares can reduce your share of ownership in your company.
Protection from creditors. A corporation is a separate legal entity from you as a person and as such, a corporation’s debts and assets are separate from those of its owners. If your corporation has creditors, they will be able to sue for the assets that the corporation owns, but they will not be able to make claims against your house, car, or other personal property.
Despite its advantages, however, incorporation is not for every business. The major downsides of incorporating are the cost and additional paperwork and documentation involved in registering and maintaining a corporation. Deciding which form of doing business is right for you can be difficult and confusing, but we can help you chose and implement the form of business entity that best suits your needs.
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