Seven Key Benefits of Incorporating Your Business
19 November, 2018
In today's economy, the most critical decision an entrepreneur takes is to choose a legit business structure for their company. This decision impacts the tax management, paperwork, personal liability and the amount of capital the company will raise.
The business entities give a lot of attention to location, customer service, shop decor, management issues and hiring employees but choosing the proper business structure from the available options like sole proprietor or partnership, corporation, limited liability company) requires more attention.
Do you also want to limit your personal liabilities and additional tax deductions? Then, you must give a thought of forming a corporation (incorporated business ) over a sole proprietor or partnership.
Though there are numerous business structures available, the business owners who want to build a strong foundation for their businesses are heading toward the incorporation of an LLC since it offers many benefits.
Here are some of the Key benefits of incorporating your business:1. Liability Protection
Most of the people incorporate the Limited Liability Company for liability protection. Since the sole proprietorship or partnership has no separation between the business and the owners, they have to sign contracts and have to participate in the personal loan proceedings. Also, if the business goes out-of-place or the specific issues (if a customer sues), the owner becomes personally liable for such situation.
In case of forming an LLC, the owner's personal assets and savings(like your bank savings, home, property, car, retirement account, etc) are not at risk, unlike a sole proprietorship or partnership. Therefore, if any legal issue occurs, the creditors or court judgments cannot involve the stakeholders or the owner's personal assets.
So, forming an LLC provides a business owner, the means of dealing with the issues like debt in compliance with the company assets only.2. Raises The Capital
Any corporation can issue the share of stocks that make the process of raising the capital for the business more easier. And, this shares of stock distribution upscales the growth chart of the business. Even the banks do not prefer to lend the money to the unincorporated business ventures.
If the corporations have to pay off their debts, they can have alternative sources of capital very easily. Moreover, to raise money or capital, one can sell off the stock ownership also rather than to take out the loan for growing the business. If the business entities choose to have the C-Corporation, then there could be numerous shareholders.3. No Misunderstandings Issues
Another key benefit of incorporating a business is that it dramatically prevents the misunderstanding between the owners or partners. Since there are always the chances of an argument when it comes to the equity distribution regardless of the personal relationships. And such arguments affect the growth of the business. Incorporation and issuing stock to the founders keep the legal paperwork in place, which outlines the way the ownership splits.4. Establish Business Credit Profile
The unincorporated business structures like partnerships and sole proprietorships rely upon the personal assets to ask for a line of credit. And for that, they have to sign the contracts. To raise the funds or to apply for the loan, a business entity must have a proper business structure, for which other investors or the third party can show their interest for investing into their business.
If the entities are looking forward to the angel funding then they get benefitted from the incorporations because the investors prefer working with them the most and another reason of their preference is that they allow different classes of stock.
Moreover, forming an LLC corporation permits the business to begin its own credit profile even if it does not seeks the investments from venture capital.5. More Credibility
The incorporation of your business helps to grow the sales chart of the business profit rate statistics. The target audiences explore the credibility of any business and build the interest accordingly.
Since incorporating the LLC requires to add LLC or Inc. with the company name, the customers consider it as an indication of the credibility. It eventually increases the sales response of the business and even the larger companies hire an incorporated business to do the work over sole proprietor.6. Enhanced Privacy
If someone incorporates an LLC, they get an additional security benefit. As an example, the home or the business address is not taken into an account rather the certified agent of your corporation goes on record.7. Tax Benefits
Mostly, the individual tax rates are much higher than that of the corporate tax rates. Since the corporations and the limited liability company gets the additional tax benefits. They also get the advantage over certain deductions, which are not available to individuals.
And while you incorporate a separate legal entity, you can save big money on taxes for several transactions structured between you and your corporation. As an example, if someone owns a building, it can be rented to facilitate the corporation. Also, one can claim deductions and depreciation for the same. But being a sole proprietor or in a partnership cannot claim the rental expense.Conclusion
It is a pervasive challenge to choose a perfect business structure for your business. As compared to the sole proprietorship or a partnership, the incorporation requires extra paperwork, but it offers essential tax and legal advantages.
The most primary reason why the entrepreneurs prefer incorporating the business is its benefit of providing personal asset protection(home, car, etc.) as it stands completely separate from its owners from the legal point of view.
In addition, the double taxation technique, which may sound unacceptable to some, makes the incorporation more appealing to one of the most successful entrepreneurs since it legally saves on taxes. While, on the taxable income, the corporation pays the standard corporate tax, the owner is also responsible for paying the income tax on the personal earnings.
Incorporation of business also protects your business name at the time of registration. Not only this, the incorporation provides instant credibility, which helps in getting prospective clients, customers, and merchants more easily.
Therefore, the incorporation of the business is trending as there is no need to take the loans to raise funds for growing the company. Also, there is an opportunity to have unlimited shareholders, and the corporation possesses the feature of unlimited life since it continues to exist even if the shareholders leave the business or dies.
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