Business Formations: Weighing the Pros and Cons of Incorporating

11/5/2021

Link to original article: https://ramlcpa.link/85b400

Do you think you're ready to take your business to the corporate level? Following are some important considerations if you are unsure about moving forward:

You want greater protection. A corporation can help separate personal and business assets.
You want to open a company bank account. Financial institutions may want you to incorporate before doing this.
You want to take tax deductions on medical, life and disability insurance that you provide for yourself and your employees. This may require incorporation.

You're looking for investors — incorporation may show you're serious.
You plan to expand your business to another state — incorporation can help you address cross-border issues.

Incorporation can help your business with all of these issues. A corporation protects its owners from personal liability for corporate debts and obligations — within limits. This is because a corporation is considered an artificially created legal entity existing separately and apart from the individuals who created it and carry on its operations.
Consider the many advantages corporations offer:

Unlike proprietorships and partnerships, the life of the corporation is not dependent on the life of a particular individual or individuals. It can continue indefinitely until it accomplishes its objective, merges with another business or goes bankrupt.
Transferability of shares means that the ownership interest can be readily sold, transferred or given away to a family member. With corporations, all of the individual owners' rights and privileges are represented by the shares of stock they hold.
Corporations have a reliable body of legal precedent to guide owners and managers.

Given these advantages, it may sound like every business should incorporate. That's not necessarily the case, however, as there are drawbacks to operating as a corporation:

As a business owner, you will be responsible for additional record-keeping requirements and administrative details.
Operating as a corporation can create an additional tax burden.
Corporations require annual meetings and owners and directors to observe certain formalities.
Corporations are more expensive to set up than partnerships or sole proprietorships.
Corporations require periodic filings with the state and annual fees.

You first have to decide whether it's worth it, and if it is, you have to complete all the paperwork required to incorporate your business. Give us a call today and we'll help you decide what the next step is for your business.