A Brief History of Businesses

5 Reasons Why You Should Form a Corporation

One of the thinks you will have to determine when you decide to start a business is what type of entity to form. Many people incorrectly assume that forming a corporation takes a lot of time and is too expensive. However, neither of these is the case.

The benefits of forming a corporation make it an obvious choice for many entrepreneurs. Most of the benefits that a corporation is entitled to cannot be enjoyed by owners running sole proprietorships or partnerships. Here are some reasons why you should consider forming a corporation:

Protection of Your Personal Assets
The owners of a corporation are known as shareholders. When you have a corporation, you will benefit from limited liability protection. This means that the shareholders of the corporation are not responsible for liabilities or debts of the business. Therefore, in case of judgments, creditors cannot seize the shareholders’ personal assets such as cars, houses, and others to pay the business debts.

On the other hand, in a general partnership or a sole proprietorship, the owners of the business are considered to be part of it. Therefore, their personal assets can be seized in case of outstanding debts.

Tax Benefits
You can also form a corporation to benefit from various tax options. The owners of a corporation are entitled to a number of tax cuts. For example, shareholders are allowed to claim tax deductions for expenses such as life insurance. Self-employment taxes also attract various tax deductions.

Consult a tax consultant to help you understand all the tax benefits of operating a corporation.

Make Your Business More Credible
When you open a new business, most potential customers will be wary of doing business with you if you have a sole proprietorship. Most people do not consider sole proprietorships to be serious businesses. When it comes to buying products or services, most people do not consider sole proprietorships to be serious entities. Most prospective customers will feel confident of doing business with you if you have a corporation rather than a sole proprietorship.

Unlimited Life
While shareholders own a corporation, its operations does not depend on them. A corporation has the ability to continue operations even when the shareholding positions change. What this means is that if an owner wishes to withdraw from the corporation or passes on, the corporation will continue to exist. On the flip side, a sole proprietorship will wind up operations when the owner passes on.

Transfer of Ownership if Easy
It is also easy to transfer ownership of a corporation. The structures and operations agreement indicate the steps to be followed to transfer ownership of a corporation. However, the rules of transferring an S corporation are restricted. Contact a business attorney to find out about the transfer options of a corporation.

The above are five benefits of forming a corporation.

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