6 Advantages of Incorporating a Business

by ExpertEntrepreneur

Are you thinking about incorporating your business? Here are the 6 main benefits of incorporation, along with the downsides and an overview of how to incorporate a business.

Incorporation makes a business a legal entity that's capable of starting lawsuits, buying and selling real property, creating contracts and even committing crimes, much like a person. Corporations also offer a number of advantages to owners, most notably protection against personal liability. Here's a look at the basic steps of incorporation, 6 main advantages and a look at the downsides you want to consider.

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Incorporating a Business

Curious how to incorporate a business? The first step is deciding the main location of your company, as some states offer more advantages in terms of incorporation. Delaware corporations, for example, have an easier time finding investors, resolving business disputes and forming the corporation to begin with. You'll also need to decide the type of business, whether it's an limited liability corporation, S corporation or C corporation. Each has advantages. Finally, paperwork must be submitted that states the purpose of the corporation, the contact information for incorporators, capital stock the corporation may use and the rights of holders of stock.

If you need help incorporating a business, contact USA Corporate Services, Inc for assistance.

Advantages of Incorporating a Business

While there are drawbacks to incorporating, such as more record-keeping and administration, the most common reason to set up a corporation is to protect shareholders from personal liability from the actions of the corporation. Here are the many benefits of incorporating a business.

Business continues indefinitely

While partnerships and proprietorships are completely dependent on the life of the individuals, a corporation will continue to exist unless it's merged with another corporation or goes completely bankrupt.

Shares can be transferred

Ownership in a corporation may be given away, transferred or sold for a profit at any time, which makes it easy to give up ownership when you're ready. Giving up ownership of a partnership, on the other hand, can be very difficult.

Raise investment capital

Corporations can also attract investors much easier than partnerships because shares can be sold and transferred and there is limited liability.

Protection against liability

Because the corporation is a completely separate entity, owners may be protected from personal liability against the corporation's actions, obligations and debt.

Ability to go public

Corporations are in the best possible situation if owners eventually decide to make it a publicly traded company.

Tax benefits

There are certain tax benefits some corporations can enjoy, although it depends on the type of corporation. Limited liability corporations usually enjoy the best tax structure, while C corporations are typically subject to something known as double taxation on business profits.

Are There Disadvantages?

Finally, while the benefits typically outweigh the downsides of incorporation, they are worth mentioning. Corporations are legally required to have a certain administrative structure (except LLCs), along with annual meetings. A corporation is also more expensive to set up compared to a partnership and there are periodic filings required. Paperwork can be a bigger burden as well, although all businesses really should be keeping extensive paperwork on their operation.

To learn more about the types of corporations, the best places to incorporate and answers to other questions, check out Frequently Asked Questions about US Incorporations.

Updated: 10/27/2012, ExpertEntrepreneur
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