There are a number of benefits afforded by forming your business as a corporation; chief among these benefits
are the protections from personal liability and asset seizure that are offered to the owners/shareholders of a corporation.
These protections limit the legal and business liabilities (protection from lawsuits and debts) encountered
by the corporation because it is treated as a separate, legal entity. There are also favorable taxation, deductible employee
benefits, personal asset protection, anonymity, ease of raising capital, and credibility benefits that are the hallmark of
an incorporated business.
Other beneficial features of a corporation are it’s broad range of powers and flexibility beyond that
of a sole proprietorship --a corporation can have it’s own bank accounts, own property, conduct business, and even establish
a line of credit, irrespective of the individual accounts or credit of the shareholders. It can sue and be sued, hire staff,
and engage in business dealings, all the while maintaining itself as an entity separate from its shareholders.
How Corporations can Reduce Personal Liability
As a corporation is formed, a separate, legal entity is formed that is recognized as being separate from it’s
owners (known as “shareholders”). Because of this separate entity status, when a corporation is sued, it is sued
as an entity different from it’s shareholders and hence any award or decision against a corporation will not go against
the shareholders as individuals--these provisions and the manner by which a corporation is treated by the law serve to protect
the shareholders and managers from personal liability. These type of protections are, of course, not part of a business operated
as a sole proprietorship--if a sole proprietorship is sued, the owner is personally liable for any judgments or decisions
against his company, an can hence lose personal assets and property. But these protections are not automatic to a corporation;
there are certain steps and procedures, or “corporate formalities,” that must be observed in order to help ensure
that these protections are in place.
Corporations and Tax Advantages
There are certain tax advantages that are available to corporations that simply are not available to sole
proprietorships or simple partnerships. These include the ability to write off medical benefits provided to employees, to
write off business and entertainment expenses, tax-favorable pension plans, and more. Further, depending on the type of corporation
formed, there can even be “pass through” taxation benefits than can further enhance the viability of the corporation
and avoid double-taxation (when profit is taxed at the corporate level as profit, then again at the individual shareholder
level as earned income). Better tax treatment means that your corporation is more likely to attract suitable investors and
allow more of the net profit to remain in your coffers.
Another tax advantage not to be taken likely is the protection from audits. It is well documented that sole
proprietorships, or individuals filing self-employed Schedule “C” tax returns, are more likely to be audited by
the IRS. Conversely, the audit rate for corporations is much lower than the self-employed. Shareholders own, and can be employed
by, the corporation, thereby eliminating the need to file Schedule C tax returns.
Deductible Employee Benefits of a Corporation
Another great benefit you can enjoy when you Form a Corporation is the wide array of tax deductions and tax-deductible
benefits one can provide to oneself and to the other employees of the corporation. Even a one-person Corporation can enjoy
tremendous tax-deductible benefits such as health insurance deductions, travel deductions, automobile deductions, client entertainment
deductions, recreational facilities, etc. One of the most beneficial deductions is the pension plan or 401K. Money placed
in a properly structured pension plan is tax deductible and the funds grow tax-free for retirement. These benefits alone can
justify the existence of the corporation, based on costs alone, many times over.
Form a Corporation for Asset Protection
When a civil lawsuit is filed, it generally comes from one of two directions: Business and personal. If your
company is incorporated and is sued by another company for business reasons, and loses said lawsuit, the shareholders will
not be required to satisfy the debts of the corporation from their own personal assets. This safeguards assets and properties
of the individual shareholders, and as such, is more attractive to potential investors. This is the “limited liability”
feature of a corporation. If faced with a personal lawsuit, such as a divorce or an automobile accident, for example, the
assets held by the corporation are safeguarded from any ensuing lawsuit or settlements against the individual shareholder--another
reason why a properly formed corporation is attractive to potential investors.
Can I Form a Corporation Without an Attorney?
Yes, you can incorporate your business without an attorney. However, it is critical that certain, specific
wording is included in the articles of incorporation, by-laws, minutes for meetings and other documents so that the corporation
can provide legal protection, tax savings and other important corporate benefits. Professionally prepared articles of incorporation,
by-laws and minutes are provided in the Companies Incorporated complete package.
Forming and Filing Process
After the initial requirements are met (the person forming the corporation must be a U.S. resident, and in
some states, a U.S. Citizen, of legal age, and that person must provide their name and physical address), it all starts by
choosing a name for your new corporation, and a back-up name. The back-up name (your second choice) is necessary in the event
that your first choice is not available. Additional person’s names can be added to the corporation after it has been
filed. Once that is done, it is time to elect the sate in which you wish to incorporate. There are many things to consider
when it comes to picking a state, with things like management versus shareholder rights, franchise tax, etc. playing important
decision-making roles. Once done, Companies Incorporated then conducts a search with the Secretary of State in the state that
you have elected in order to ensure that your name is available, and if the search comes up with no conflicts, your name is
reserved. Then we take it from there, conducting the filings, assigning a registered agent, etc., with you only needing to
provide the necessary fees to cover the set-up and filing costs, and thereafter observing the corporate formalities.
