There’s
no question that hard work and a little luck is what it takes
to be successful. But a little knowledge, especially
when it comes to setting up your business, will help you stay
successful.
While
many business owners give a lot of thought to location, store
décor, customer
service, hiring employees and management issues -- and rightly so--
choosing the proper business structure -- such as a sole proprietor,
partnership, corporation, or limited liability company -- does’t
get the attention it deserves.
Many entrepreneurs don’t realize this, but the business form
they choose can oftentimes be the difference between success and
failure, especially in today’s competitive and litigious
marketplace.
If you want
to succeed, you need all the advantages you can
get. High on the list of safe bets is the corporate form of business.
Incorporating,
while definitely not for everybody, offers several distinct and
money-saving advantages over the other types of entities. Here are
seven of those advantages:
Asset
Protection – If you operate as a sole proprietor
or partnership, there is virtually unlimited personal liability
for business debts or lawsuits. In other words, should you go
out of business or be a defendant in a lawsuit, your personal
assets -- such as homes, jewelry, vehicles, savings, etc. --
are
up for grabs. This is generally NOT the case when you incorporate.
When you incorporate you are only responsible for your investment
in the corporation. The limited liability feature of a corporation,
while not a guarantee, is definitely one of the most attractive
reasons for incorporating.
Easier
To Sell – Corporations are generally much
easier to sell and are usually more attractive to buyers than
either
a sole proprietorship or partnership. The reason for this is
because a new buyer will not be personally liable for any potential
wrongdoings
on the part of the previous owners. If someone buys a sole proprietorship
for example, the new owner can be held personally liable for
any
mistakes or illegalities on the part of the prior owner -- even
if the new owner had NOTHING to do with the situation! This is
usually NOT the case with a corporation.
Tax
Savings – When you incorporate there are numerous
tax advantages at your disposal that are virtually impossible
to accomplish with other business entities. When you incorporate
you create a separate and distinct legal entity. Because of this,
there are many transactions that you can structure between you
and your corporation to save big money on taxes. For instance,
if you own a building you can rent office facilities to your
corporation
and claim depreciation and other deductions for it. Your corporation
can then claim the rental expense. You are prohibited from doing
this if you are a sole proprietor or a partner in a partnership.
Privacy
and Confidentiality – The corporate form of
business is a great way to keep your identity and business affairs
private and confidential. If you want to start a business, but
would like to remain anonymous, a corporation is the best way
to accomplish this. States such as Nevada offer even more privacy
protection for corporations and their shareholders. But regardless
of a state's privacy laws, constant diligence and planning is
required in order to maintain even a basic semblance of anonymity.
Easier
to Raise Capital – When you’re looking
to raise money through investment or borrowing, a corporation
can actually make finding and getting the money you need easier.
If you want to take on investors you simply sell shares of stock
or issue debentures. If you want to borrow, a corporation can
add clout when dealing with banks or other lending institutions.
Perpetuity - As I mentioned in #3 above, when you
incorporate you create a separate and distinct legal entity. This
separate and distinct entity (the corporation) can endure nearly
forever, irrespective of what happens to the shareholders, directors,
or officers. This is NOT the case with sole proprietorships, partnerships
or even limited liability companies. For example, if an owner,
partner, or member dies, the business AUTOMATICALLY ends or gets
wrapped up in legal red tape. Corporations, on the other hand,
have unlimited life.
Increases
Credibility – In business,
impressions mean everything. Operating as a corporation
can give prospective customers an added feeling of security
and trust. Having INC. or CORP.
after your company’s
name definitely adds a touch of professionalism and credibility
to all of your business
dealings.
As always, be sure to consult with your attorney or business advisor
before undertaking any important legal or financial decision. While
there are many advantages and money-saving reasons to incorporate,
as I’ve said before, it’s not for everybody. However,
you do owe it to yourself to find out more.
This article may be freely reprinted on your website or in your newsletter provided
you follow these instructions.
If
you'd like more information or would like to discuss this
article personally with me, please write to
me at alex@goldminetactics.com
See
below for author information.
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