A corporation is merely a file folder with legal papers and documentations, sitting in some attorney’s office registered by the state secretary’s office. It’s not a huge building with a fancy name on it. A corporation is merely a legal documentation of an idea. Its purpose is to protect the business owner. It is merely a vehicle to limit business risk. Here are some of the positive features of a corporation against a sole proprietorship business.
1. Unlimited life
A corporation’s life is not dependent on its members. Unlike in a sole proprietorship where risk of losing everything in an event of inability to run the business by the owner is possible or when the owner dies, virtually the whole business collapses. However in a corporation, it does not. It has the capacity to exceed its owner’s life time because it is run by centralized set of people. If you are looking forward to creating a long legacy thru your company, then it is best to incorporate it.
2. Easier capitalization
It is much easier to raised capital by selling stocks and bonds. Investors and potential shareholders capitalize the corporation. They have vested interest in the company’s success because now they have shared goals. This structure of support makes it even more financially stable than an ordinary sole proprietorship where you have to raise plenty of money to fund your business yourself. If you are looking for financial support from other people, allow them to buy into your vision. Allow them to have ownership within your company. This way everyone wins.
3. Centralized management
A corporation has a board comprised of shareholders and directors who follow rules of conduct and governance. These are the people we often see in movies who are dressed sharply and gathered around a long wooden table during a corporate meeting. If you are looking for input from other people on where should the company go, if you are looking for a strong structure with systematic recordkeeping and if you are looking for stability from numbers, incorporate your business.
4. Limited liability
Unlike a sole proprietorship where an owner has no protection from damages in a business law suit, where the owner is a sitting duck and is exposed to unlimited asset and capital risk, corporations are legally separate from their owners thus reducing personal risk. Another advantage of a corporation from a sole proprietorship is its creditors can’t hold the owners personally liable for the company’s debt and other liabilities. Unlike a corporation, a sole proprietorship’s business credit line and other loans will reflect on the owner’s credit report, debt load, and total liability. If you are looking to get rid of a lot of business liability, incorporate your business.
5. Easier to set up programs
A corporation can easily justify the setting up of a medical program for its employees and make it as tax deducts. It can also easily set up retirement funds as well as retirement plans for its employees which a sole proprietorship won’t and can’t. If these programs attract you, then incorporate your business.
Who needs to incorporate? Well if any of the above advantages make sense to you, then incorporate your business.
