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What are the Advantages of Incorporating?

There are many important considerations that an individual must take into account when planning to open their own business. Successful businesses depend on many different elements coming together into a singular and cohesive process that results in a well functioning company. A great business concept and the drive and determination to make that idea come to fruition are vital to the success of any business endeavor.

However, without the proper structure in place, an otherwise successful business can start off on fatal footing and never realize its true potential. Sometimes a successful endeavor can hinge on whether a company is formed as a partnership, LLC, or corporation.

Choosing the Right Structure

Personal Liability Protection

The number one advantage of incorporating is the personal asset protection that a corporation provides for the owners. A sole proprietorship or a partnership offers virtually no personal liability protection against lawsuits or business debts for the owner or partners. The other major advantage to a corporation is in its tax structure.

A corporation is a separate and distinct legal entity and can claim a number of business expenses including:

  • operating expenses,
  • travel and entertainment expenses, and
  • health benefits and salaries of its employees.

Any contributions to pensions and retirement plans that are made by the corporation, including those of its owners, are also considered an expense and limit the amount of tax liability facing a corporation.

Helping to Establish Longevity and Credibility

Another advantage to incorporating is that a corporation is a perpetual entity that survives even if ownership or management changes. This is particularly important if the owner of the corporation plans on merging or selling the company in the future because it provides a greater incentive to a potential purchaser. If something should happen to a sole proprietor or one of the partners in the partnership, the business could simply come to an end.

Incorporating also lends additional credibility to a business’s name simply because becoming a corporation is a more complicated process than forming a sole proprietorship or partnership, which may give the impression of a more formal and permanent business structure to a potential client or vendor.

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