Why should I incorporate?

There are several different types of corporate structure: sole proprietor, partnership, corporation or Limited Liability Company (LLC).    Sole proprietor and partnerships are the easiest businesses to form.  A sole proprietor chooses a business name, conducts a name search, then files the business with the county clerk.  Partnerships, once a business name and search has been conducted, require an agreement between partners to govern their business.   Limited partnerships are similar to corporations and usually require the services of a registered agent.  When choosing whether to incorporate or not, take a look at the long and short term goals of the business, the nature of the business and the benefits associated with each type of entity. 

Personal Liability - When a corporation enters into a transaction, it is the corporation and not the shareholders who is responsible.   Personal liability is limited to the amount of money invested in a corporation with the exception of unpaid taxes.  Creditors cannot reach beyond the assets of the company in normal circumstances.  If the business owner wishes to raise capital, a corporation is more attractive to the investors who can purchase shares of stock and thereby become part owner.

Tax Considerations - There are more tax options available to corporations than to proprietorships or partnerships.  The implementation of tax-free benefits such as life and health insurance, profit sharing and stock option plans.  A corporation can ease the tax burden of its stockholders by accumulating its earnings provided that the accumulation is not unreasonable and is for business purposes. Owners of a corporation file two tax returns, individual and corporate.   (Owner of proprietorship files one return; members of a partnership file two).  

Stock - Shares of the corporation can easily be distributed to family members.  Transferring ownership and raising capital are easier through the use of stock.   A corporation usually has a perpetual life, distinct from that of the shareholders.  Shares of stock can be used for estate and family planning.  Owners can quickly transfer their ownership interest represented by shares of stocks, without dissolving the corporation.

A corporation can also issue Corporate Bonds to raise capital for expenditures without compromising the ownership of the business.