Benefits of Incorporating
To form a Corporation most states require you file Articles of Incorporation describing your business and how many shares will be allocated. Forming a Corporation (or "incorporating") is a popular option for small businesses, including start-ups. There are many advantages to forming a Corporation, including:
- Liability Protection - Corporation owners (called shareholders) enjoy limited liability protection, which means in most cases you will not be held personally liable for the debts of the Corporation.
- Raising Capital - Corporations can raise capital by selling shares of stock to investors. LLCs do not have shares of stock. This is why startups that need to continually raise money until mature are typically Corporations instead of LLCs.
- S-Corp Status and Reduced Self-Employment Taxes - If you choose S-Corp status, you may be able to avoid Social Security, Medicare or self-employment taxes on a portion of the business profits.
- Other Tax Advantages - Incorporating allows for certain tax advantages, including tax-deductible business expenses such as the owner-employee's health insurance and life insurance premiums.
- Establish Credibility - Potential customers, vendors, and investors will likely have more assurance when your business is incorporated. Banks sometimes even prefer making loans to borrowers who are incorporated.
- Unlimited Life Span - With planning, your Corporation can live forever. Even if an owner dies, or sells their interest in the Corporation, the Corporation can continue on indefinitely.
- Retirement planning - Retirement plans (like a 401(k)) and retirement funds can be set up fairly easily when a business is incorporated.
LLC vs Corporation
When starting a business you may be deciding between an LLC (Limited Liability Company) or a Corporation. LLCs are a much more popular choice when starting a new business (90% of TotalLegal customers choose an LLC). However, if you would like to raise money in the future by issuing shares or you want the possible tax savings of an S-Corporation, a corporation may be the right choice for you. If you would rather form an LLC, select the "Start LLC" button.
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