Business Incorporation

What Does Incorporating Protect?

Unlike traditional styles of operating a business, like a sole proprietor or general partnership where each company principal has unlimited personal liability for business mistakes, shareholders in a corporation can lose no more than their original investment.

This means that your personal assets like an automobile, house and financial assets can’t be lost if your business fails, or something goes wrong and you lose a lawsuit brought against you. All businesses can benefit from incorporation beyond high risk industries like food service, child care and medical instrument manufacturing, especially if you have customers visiting your shop or store. One slip or other mishap and you could be facing a huge medical injury liability.

Benefits of Incorporation

Business incorporation can offer employee benefits including medical, life and disability insurance at fully taxed rates. Incorporation also grants the ability to raise capital by selling hares of stock and enables the business owners to easily transfer company ownership. Other benefits include corporate discounts when purchasing supplies and materials. There is also a strong and stable corporate image that a company can project in the business community. This corporate image can also be used to recruit employees that a smaller business could not.

Downsides of Incorporation

Downsides of business incorporation include the cost and difficulty of jumping through a series of seemingly endless hoops required by the state you incorporate in, and federal agencies. Shareholders must be satisfied by company performance to prevent them from filing lawsuits to remove you as owner or CEO. You must also maintain a separation of personal income and expenditure, which requires stricter accounting methods that can satisfy IRS requirements.

Your state’s Small Business Development Center should have additional information about the location of a center office near you. Or you can check with The Assocaition of Small Business Development Centers for location of centers in the U.S.. You can also check Small Business Development Centers for additional information about what each center offers.

Types of Incorporation

Incorporation can be an expensive venture with costs varying from state to state. Business incorporation fees can range from $100 to $1,00 excluding attorney service fees required to wade through and understand the complexities of the process. Other fees often appear unexpectedly. Some states offer incorporations more favorable to businesses, notably Incorporating In Delaware.

C Corporation

A C Corporations provides extensive personal liability protections. One of the biggest benefits of Incorporating as a C Corporation, is that C Corporations are taxed at the corporate level as a separate entity rather than as individual shareholders, although shareholders are required to pay taxes on any profits generated. This is known as double-taxation status.

Filing for a C Corporation can be a long process, taking up to two months depending upon the speed of review process by the secretary of state and county officials.

S Corporation

This type of corporation is designed for smaller companies that do not have the issues of numerous shareholders to deal with, and limits the number of shareholders to 75. S Corporations provide the same levels of liability protection, but avoids the costs of double taxations that C Corporations have. Taxation is limited to personal income taxes of individual shareholders, but since most small business owners that opt for this type of incorporation are just starting out and may not show a profit for several years, it had the advantage of offsetting businesses loses against personal income.

Limited Liability Corporation LLC

A Limited Liability Corporation is a hybrid combining two elements: the benefits of a partnership and personal liability protections. Tax advantages of LLCs include business income and losses assessed against the personal incomes of the LLC’s investors, also called members. Profits can be allocated at different levels to members of he LLC.