1. Asset Protection: By incorporating you have the ability to separate yourself from your business’ liability. For instance, if your business goes under or is sued, your own personal assets (home, car, etc.) will not be subject to repossession. Other entities such as sole proprietorships do not offer that kind of protection. If you are doing business as a sole proprietorship and your business goes under/sued, all of your family’s personal assets are subject to repossession to pay any lawsuit or remaining business debt.
2. Tax Deductions: By incorporating you can also take advantage of numerous tax deductions that other legal entities cannot exploit, such as fringe benefits. Everybody needs health insurance, life insurance and a retirement plan. By incorporating, you are able to provide such benefits for your employees. These fringe benefits are tax free for your employees and a tax deduction for the business. You also have the added bonus of deciding to pay corporate income tax and then your own personal income tax separately (also known as double taxation). With an S corporation, you have the option of letting the profits and/or losses of your business flow through to be taxed as your own personal income.
3. Privacy: Many business owners want to maintain their privacy for many reasons. One main reason is to avoid being the victim of a lawsuit. Often times people will try and find out a company’s net worth prior to filing a lawsuit. By incorporating you have the ability to shield your personal information from the public’s eye. Certain states have excellent privacy laws keeping their owner’s identities off public record.
4. Raising Capital: Every business needs money. Since a corporation is a separate legal entity it has its own credit profile separate from its owner. This means, once business credit is established, it can obtain loans for: equipment, cars, property and/or anything the business needs. Corporate credit also builds much faster than personal credit, thus making it easier to secure. A corporation also has the ability to raise money by selling stocks, bonds, and other securities.
5. Credibility: Corporations often enjoy doing business with greater ease than a sole proprietorship. Many banks and suppliers prefer a corporate account over a personal account and are far more likely to do business with you.