Should I Incorporate My Business?

By Author: William Hauselberg
Total Articles: 816
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When deciding whether to incorporate your business, you will need to examine the pros and the cons and decide for yourself what is best for your company. Should you decide to incorporate, you will need to familiarize yourself with the articles of incorporation, or simply put, the primary rules for corporations operating in the United States and Canada.

Prime Reasons for Incorporating a Business

The number one cited reason for incorporating is that it limits the liability of the owner of the business. If the incorporated business fails to meet its financial obligations, creditors do not go after the owner’s personal assets. However, if the corporation does not have enough assets, financial institutions will either not lend the business money or it will require that the owner put up some personal assets as collateral for a loan.

Among the reasons for incorporating, perhaps the best reason is that a corporation has an unlimited life span. The corporation continues to exist even if the shareholders die or sell their shares, effectively transferring ownership.

One other advantage that a corporation has ...
... over the sole proprietor is the ability to raise capital through the sale of more shares. Corporations do not have to pay back capitol raised this way and it does not incur interest. Of course, the drawback is that the owner reduces his or her percentage of ownership of the business.

The Main Disadvantage of Incorporating a Business

There are some disadvantages to forming a corporation. As already mentioned, one needs to familiarize his or her self with the articles of incorporation, including laws regulating income tax. This is probably the greatest disadvantage in that corporations pay taxes at the corporate level and then the owner pays taxes on his or her income.

On the positive side of this drawback, a corporate business owner can defer part of his or her income for a later era in life, such as retirement, when the individual may not be in as high of a tax bracket. Be sure to consult an attorney or accountant for more regarding corporate taxation.

There are other considerations when deciding whether to form a corporation. If the sole proprietor is considering incorporating, it may be best to consult with an attorney who can thoroughly explain the articles of incorporation, the advantages, and the disadvantages with forming a corporation. Then the individual can decide what is best for his or her business.

This article explains the disadvantages of forming a corporation. Information about articles of incorporation is available as well.