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When a business owner is considering forming a corporation, it is wise to investigate the pros and cons of incorporating. Changing a sole proprietorship or general partnership into a corporation or a California LLC does not have to be expensive nor is it time-consuming. The advantages are such as to make creating a corporation or a California LLC very beneficial to all concerned. The following are the main advantages of incorporating or forming an LLC.
Limited Liability Protection for both Incorporation and an LLC Formation
Separating your personal assets and business assets is a smart move when running a business. Risks are common in business and if a company is sued, the sole proprietor's finances and assets are endangered. With a corporation or an LLC, the owners (shareholders) are protected and only the finances or investments in the business could be used to pay business debts.
Safety and protection for business owners are important factors in running any business endeavor. Corporations provide this protection, as they are separate entities with their own rights and laws governing them. All liabilities lie with the corporation and the owner's assets are secure. This is unlike a general partnership or sole proprietorship where the business and the owners are one legal entity.
Tax Advantages with a Corporation are Different than a California LLC
Although a California LLC usually pays taxes at the individual level, many tax benefits come into play when your company is a corporation. Some of these include:
- Deductible health insurance premiums
- Savings on self-employment taxes
- Life insurance is deductible
- Profits and losses do not affect personal taxes of owners in some cases
When you draw a salary or if you take profit payouts from your company, your personal taxes can be affected in these cases. An accountant or your tax advisor can help inform you of every single advantage you can gain as a corporation, as well as how to achieve the least tax liability.
The chances you will be audited are less than if you have a sole proprietorship, because there are fewer restrictions and thus a greater business transparency is presumed.
Growth, Credibility and More According to Capital Process Service
Raising capital towards the growth of your company is much easier with a corporation because you can sell equity to interested investors. The potential is even greater when you become publicly traded on the stock exchange. Going public gives you the ability to make your fortune!
Credibility is enhanced with a corporation and can increase a business' client, customer and vendor base. Loans are easier to obtain as a corporation. Retirement funds are easier to establish.
Naturally, anything has its downside. Corporations, too, have some disadvantages. There are expenses entailed with the formation of the corporation as well as ongoing expenses such as ongoing state fees for annual reports. A number of formalities need to be followed which require some work, such as keeping of records and holding meetings of directors and shareholders. A corporation must adopt and maintain bylaws and issue shares of stock. However all these things can be dealt with relatively easily when you learn how.
The advantages often outweigh any disadvantages. It is at least worth it to look into forming a corporation. Capital Process Service has much familiarity with forming a corporation and a California LLC as they have helped business owners throughout California file for these statuses and hope each interested person does due diligence to discover his or her own personal advantage to incorporating.