Top Reasons to Form a Corporation

Top Reasons to Form a Corporation

When a new business gets started the most vital decision is to choose the kind. It includes sole proprietorship, partnerships, Limited Liability Company, and Public Corporation Company.

Sole proprietorship means limited scope and partnership does not offer protections like private limited. On the other hand, it is believed that forming a corporation is too time-consuming and extremely costly. It is a wrong belief. Below are some good reasons why you need to open a corporation.

Benefits gained in corporation formation offset any alleged drawbacks. In contrast, benefits in several cases are off limits to sole proprietorship and partnership.

Reasons to form a corporation

Owner/s gets liability protection

As soon as the corporation forming process gets concludes, the owner/s gain limited legal liability for business debts and activities of the corporation. Law believes corporation to be a separate entity, therefore creditors cannot chase the owner/s personal assets like car or home for repayment of business debts.

On the other hand, in sole proprietorship and partnership the business and owners are legally regarded as one and personal assets get to be used for paying business debts. However, to maintain this legal liability, the owner/s needs to follow several legal corporate formalities.

Raising capital

Sale of stock allows raising capital for corporation, easily. In addition, banks also desire the borrower to be a corporate business.

Establishing credibility

Corporation is empowered to issue stock, which is a forceful selling point for potential investors, partners, employees, and vendors.

Tax advantages

Deductibility’s on –

  • Employee health insurance premiums
  • Workers compensation & Medicare taxes
  • Self employment taxes
  • Life insurance

Power structure

Corporate type of business has recognized power and management configuration in the form of directors, officers and the shareholders. Each grouping has their individual roles and responsibilities [clearly defined] inside the corporate structure.

Unlimited life

Corporate life does not depend on the owner/s. If owner dies or desires to sell his/her share the corporation still continues to exist and perform business.

Ownership transferability

Corporation ownership is transferred easily but if you belong to ‘S’ corporation ownership then there are some restrictions. You can check it with your lawyer.

Legal structure chosen plays a vital role in business success, so do your homework to make an informed decision.

Category Business

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