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Incorporate your company: It has great benefits

Incorporate your company

If you decide to incorporate your company you will find that there are several advantages and disadvantages. The corporate structure is more complex and more expensive than other forms of businesses. A corporation is an independent entity from the personal assets of the owners. If you incorporate your company you will find that it requires complying with more regulations and tax requirements then proprietorships and partnerships.

Incorporate your company for the advantages:

The largest benefit when you incorporate your company is related to the liability protection that you will receive. A corporation’s debt is not considered to be that of the owners, so if you incorporate your company you are not putting your personal assets at risk. Also, you’re able to retain some of the profits in the business without the owners paying taxes on them.

When you incorporate your company, you also increase your ability to raise money. A corporation can sell stock of various kinds (common and preferred) to raise funds. Corporations also continue on indefinitely if one or all of the owners die or become disabled, or decide to sell their shares in the corporation. However, the corporate structure does come with some disadvantages.

Disadvantages when you incorporate your company:

A major disadvantage when you incorporate your company is that there are higher costs involved. Corporations are formed under state laws with specific reporting requirements and regulations. You will probably require the services of an attorney if you decide to incorporate your company. Also, because a corporation must follow more complex reporting and regulatory requirements then partnerships and sole proprietorships, it will also require more complex accounting and tax-preparation services.

A major drawback when you incorporate your company is that the owners of a corporation pay a double tax on business earnings. Not only do corporations pay state and federal taxes on the income generated by the corporation, but also any earnings distributed to stockholders in the form of dividends are then taxed at individual tax rates on personal income tax returns.

There are strategies to help you minimize the problem of double taxation when you incorporate your company. You may pay money out as salary to you and any other corporate shareholders who work for the company. Corporations are not required to pay tax on earnings paid as reasonable compensation, which then allows it to deduct the payments for salaries as a business expense. However you must be careful in not overcompensating yourself or others as the IRS has put limits on what they believe to be reasonable compensation.

Information from Start Your Own Business by Rieva Lesonsky

Web page by Paul Susic MA Licensed Psychologist Ph.D. Candidate CEO/President Susic Psychological Consulting P.C.