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The Advantages and Disadvantages of Incorporating Your Small Business

6 Benefits of Incorporating Your Small Business


The decision of whether or not to incorporate your small business is one you need to consider when you decide to start a business. Some of the benefits of forming a corporation include:

1. Limited Liability

Limited personal liability is one of the most common reasons businesses become corporations. A corporation is a distinct legal entity, so incorporating protects the business owner's personal assets, even if the corporation is in debt or facing other liabilities.

2. Tax Benefits

Owners of corporations are only taxed on their own salary, bonuses and dividend payments. There are also other tax benefits that are available to some corporations, including insurance premium deductions, deferred tax payments and income splitting.

3. Business Credibility

When a business has completed the process of becoming incorporated, it can have a favorable impact with investors, making it easier to raise capital. Plus, in some cases, there is a perceived permanency and reputability on the part of clients or customers when a business is a corporation.

4. Stock Incentives

One of the defining elements of a stock corporation is the stock structure, which gives board members and employees a share in the ownership of the company. This can be an attractive benefit for employees and can lead to higher employee retention rates.

5. Perpetual Existence

Unlike a sole proprietorship, a corporation continues to exist even if the owner passes away or leaves the business. A corporation will remain in existence until the shareholders take measures to dissolve it, or until the corporation is merged with another business.

6. Transferability

Since a corporation is not tied to its owner, ownership can be transferred to another by selling stock. This is typically governed by the corporation, which can set limits on the transfer of stock, and the laws of the state where the corporation was formed.

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