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03/05/2018 Foods & Culinary

The Advantages of Forming a Corporation

If you are running a sole proprietorship or want to start a business, you may be wondering what the benefits of forming a corporation are. Most people avoid forming a corporation because they think it is too expensive or time-consuming. However, nothing could be further from the truth.

Comparing the benefit of a corporation to the perceived disadvantages, it is clear that the entity is beneficial in many ways. Most of the benefits that a corporation is entitled to cannot be enjoyed by owners running sole proprietorships or partnerships. Here are some reasons why you should consider forming a corporation:

Protect Your Assets from Liability
“Shareholders” refers to the members that own a corporation. When you have a corporation, you will benefit from limited liability protection. Therefore, in case the business has any debts or liabilities, the owners will not be held liable for them. Should the company be sued, the creditors cannot attach the personal property of the shareholders to any activities meant to recover the debts.

On the other hand, in a general partnership or a sole proprietorship, the owners of the business are considered to be part of it. In such a case, the personal property of the owners of the business can be attached to the company and auctioned to recover debts.

Take Advantage of Tax Cuts
Another benefit of forming a corporation is to gain tax advantages. There are various tax deductible options shareholders of corporations have. For example, any payments made for expenses such as life insurance may be tax deductible. There are also tax deductions on self-employment taxes.

An accountant can help you understand the various tax benefits you can take advantage of when you open a corporation.

Make Your Business More Credible
In most industries, clients prefer working with corporations rather than partnerships or sole proprietorships. Most people do not consider sole proprietorships to be serious businesses. When it comes to buying products or services, most people do not consider sole proprietorships to be serious entities. Most prospective customers will feel confident of doing business with you if you have a corporation rather than a sole proprietorship.

Continuity Structure
A corporate may be managed by stakeholders, but does not depend on their owners. Even when there are changes in the shareholder agreements, a corporation can continue operations. What this means is that if an owner wishes to withdraw from the corporation or passes on, the corporation will continue to exist. On the flip side, with a sole proprietorship, the business will come to a close when the owner withdraws their interest.

Transfer of Ownership if Easy
Transferring ownership of a corporation is also possible. The structures and operations agreement indicate the steps to be followed to transfer ownership of a corporation. However, S corporations have special transfer rules. Contact a business attorney to find out about the transfer options of a corporation.

The above are five benefits of forming a corporation.

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