Incorporating a Business: Advantages and Disadvantages

Business owners choose to have their business incorporated to protect themselves and their personal assets from liability. The most compelling reason that businesses decide to incorporate is the protection it provides against lawsuits, losses and debts. A corporation can still be sued, but the people in the corporation are not personally liable for unpaid debts. This means that their personal assets cannot be taken away by creditors or vendors. Corporations can also write off most debts that sole proprietors cannot, including health and life insurance.

Advantages of Incorporating a Business

• Limited liability protects a business from going bankrupt in the event of a lawsuit. Owners and stockholders cannot lose their investments if an individual or entity sues. If their assets are not used as collateral in establishing their business, their asset and personal holdings are protected.
• Another advantage of incorporating a business is lower tax rates. It’s easy for corporations to raise money through the distributions of stocks and shares. Ownership and transfers are made through security transfers. The truth about incorporating a business is its unlimited life and tax benefits. However, businesses can take advantage of an additional tax benefit, by operating their establishment under an Internal Revenue Code called Subchapter S.

Disadvantages of Incorporating a Business

• Too many annual meetings. Owners have to observe and adhere to strict formalities.
• Corporations cost more to set up than other business types. There are numerous filings and annual fees.
• Double taxation can be a problem unless the owners know which internal code to file.

California Document Preparers helps our clients determine the business structure that is right for their organization. Our business formation packages include the state’s filing fees—and we do the filing.