|
 Print Friendly
 Email to Friend
|
|
Should You Incorporate?
|
|
Article 3: Other Corporate Benefits —
And Potential Drawbacks
In addition to the primary benefits of limited liability and potential tax savings, there are other potential benefits to incorporation. These include:
Greater flexibility in raising capital. Incorporating allows your business to issue common stock, which opens up the equity markets as a potential source of financing beyond just debt.
“Capital can be raised more easily through the sale of stock, because most people understand the concept of owning stock,” says Keith Hall, a Dallas-based CPA and a tax consultant with the National Association for the Self-Employed (NASE). Perpetual business life. A corporation is the most enduring business structure. The company does not cease to exist upon the shareholder’s death. Easier transfer of ownership. “Incorporation may be preferable if you anticipate selling the business or bringing on a new partner or investor,” says Hall. It also allows the easy continuation of a family business by simply passing the stock on to successors. Keep in mind that there are some restrictions on S corporation ownership. Enhanced credibility. Incorporating may help a new business gain credibility with potential customers, employees, vendors and partners.
One of the biggest drawbacks of incorporation is the potential for double taxation, where income is taxed once at the corporate level and again at the individual level when it is passed through to shareholders in the form of dividend income. This can be avoided by electing Subchapter S corporate status, which is discussed in the next article.
In addition, forming and maintaining a corporation in good standing may require additional time and expense in the form of extra paperwork, recordkeeping and accounting expertise. Excellent financial records must be kept to facilitate the filing of more complicated tax returns.
The corporate charter may also restrict the types of business activities a corporation may engage in, and corporations are subject to many federal and state controls.
|
|
|
|
|
|
|
|
|
|
|
