To Incorporate, Or Not To Incorporate?

2007-03-08 10:33:40

( Business )



Before you decide to incorporate your business, be sure that you are making an informed decision. Running a corporation is vastly different from running a single-proprietorship or a partnership. You do not want to make a hasty decision and regret it later.

Corporations have their own sets of advantages and disadvantages, and you must be aware of them if you are to make the right choices. The advantages of having a corporation include the following:

Limited liability. A corporation is a separate legal entity. That means that it has a separate identity from you, and it can act and be acted upon under law. If your corporation falls into debt, creditors cannot chase you down for payment. The most they can do is sell whatever assets the company has in order to raise cash to apply to its debts.

Longevity. A corporation has a life of its own; it will live on after you are gone. As long as the company is viable and still has people willing to hold its shares, it will continue.

Added ease in raising capital. Corporations can raise capital more easily then other types of business organizations. They simply have to issue stock and sell them to underwriters.

Centralized management. Corporations are by necessity more organized, if they are to fulfill the various legal obligations that they carry.

On the other hand, the disadvantages of a corporation are the following:

Double taxation. Corporations are taxed on two levels: first, the corporation’s income is taxed; then it is taxed again when profits are distributed to shareholders. This double tax, however, can be minimized by using reasonable deductions.

Added complexity and expense. To incorporate your business, you will need to spend some time and money. It will also change how a business is run. Having a corporation will require you to use more exact accounting methods; this may require you to hire workers that you previously did not require.

All these factors have to be studied before you decide to incorporate your business. It will require some serious study and thought, but you should not defer your decision for long. Incorporating your business is not a simple process; so before making such a decision, be sure that it is the best move for you.


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