There are some fundamental reasons for incorporating your business:
LIABILITY
In simple terms we live in a lawsuit happy society. Law suits are more and more frequent as each year passes. In all, over 15 million civil cases were filed in state Courts each year, according to the State Court Guide to Statistical Reporting, from the National Center for State Courts. Trial lawyers earn an estimated 30 to 40 billion dollars in lawsuit awards each year.
If you are operating your business as a sole proprietor or a general partnership or DBA,( doing business as),you are entirely and personally responsible for debts and actions of the company. If you are a member of a general partnership and the general partnership is operating as a DBA you could become responsible for not only your own actions, but also for the actions of your partners, if this is your situation you are risking every asset you personally own and in fact risking your future.
One of the foundational structures of asset protection is incorporation. Both corporations and limited liability companies enable the owner to keep their personal assets separate and protected in the event of a lawsuit or claim against the business.
If you have a properly structured your entity, and maintained your corporate formalities, the owners obtain limited liability and personal protection from any debts or claims that the company might become liable for now and in the future.
Personal asset protection is probably one of the paramount benefits provided by incorporation. The owners of a Corporation are shielded from any personal obligation to repay the debts that the Corporation incurs. Many people use a limited liability company, as there are several potential tax advantages when using these types of structures to incorporate a small business.
LIQUIDITY
In today’s world it is rare that a person stays involved in one company for a lifetime. Incorporation removes potential limitations of transferring interest in the company. So as a shareholder of the corporation you can divest yourself of the corporation’s shares of stock to cash out your interest in the corporation without affecting the corporation’s operation or stock value.
Many partnerships prevent the transfer of interest in the partnership without dissolving the partnership. So the remaining partners must resolve the challenges of maintaining the business when a partner leaves the partnership.
PERPETUAL EXISTENCE
A corporation can continue indefinitely until it is either dissolved by the corporation itself or by the Secretary of State where the corporation is domiciled. The continued existence and operation of a corporation is not affected by the withdrawal or death of one of the owners. With the appointment or transfer of shares a new owner can proceed in place of the previous owner without affecting corporate operations.
TAXATION
There are several potential tax advantages, no matter what type of corporate entity you form. There are deductions that a C Corporation, S Corporation or Limited Liability Company can deduct a large variety o of operating costs thereby reducing the overall tax liability such as, costs of materials, employee/contractor wages, costs of insurance, business travel, retirement’s plans, health insurance, child care, etc. from their annual filings that an individual cannot.
Typically, the profits and losses pass-through a limited liability company and get reported on personal income tax forms. The owners an LLC can also elect to be taxed as a Corporation and likewise a Corporation can avoid double taxation of corporate profits and dividends by electing subchapter S status are allowed to deduct normal business expenses including salaries and any other costs of operation before they allocate income to the owners. Incorporation is a very important decision to the success of your business.
Nevada Corporate Associates, LLC has a working relationship with several accountants and CPAs who have proven to be very expert at business and personal income tax. We refer clients frequently to these experts for their help in their tax filings.
BUILDING CREDIBILITY
Starting a corporation build a recognizable edifice in the commercial world. Customers, potential employee’s banks, investors and government contracting agencies gain a sense of credibility when a business has corporate status. Many bank loans and government contracts are only provided to corporations.
NEXT STEPS
If this article causes you to assess your current position and rethink your strategy, contact us today and learn to operate in a safer environment with a more calculated and determined path to success.