Do you run a small business? Have you ever considered incorporating your business? Some people do not think it is worth the hassle. There is paperwork you have to keep up with throughout the year and there are expenses that come along with it, but there are also legal and tax benefits that come with incorporation.
Incorporating your business can protect your personal assets. A corporation is recognized as a separate legal entity that can own property, incur debts and liabilities, carry on business, and can also be sued or sue other parties. If, in the event that a creditor is seeking payment for a debt, the creditor can only get payment from the assets of the corporation. The personal assets of the shareholders, directors and officers are off limits.
Another way incorporation can be beneficial to a business owner is in the event of lawsuits. If your company is sued and the plaintiff wins their case against your company, it is the company that has to pay the legal fees and judgment award, not you personally or the directors or shareholders. The directors can be held responsible and may be held personally liable, but this is in very specific circumstances.
When you incorporate your business, you can then issue shares. This can help you raise capital for your business. Additionally, banks are more likely to lend money to a corporation as opposed to an unincorporated business because corporations have, generally speaking, access to more alternative sources of capital.
There are also tax benefits to incorporation. Corporations are taxed on their profits, but the profits can be reduced. How? Qualified business expenses, such as operating costs, marketing and advertising expenses and travel expenses eat into profits. Without these expenses, however, the chances of making a profit are lower. It is important to remember that the structure of your corporation will affect the taxation of it, so the tax benefits are not always simple and straightforward.
At Global Equity Law, we have assisted countless individuals incorporate their businesses. If you are considering incorporation and want to know more about it, contact us today to set-up a consultation with one of our experienced corporate lawyers.