Make Your
Business Official

A corporation is a legal entity created by individuals — referred to as stockholders or shareholders — to conduct business. Unlike some other business structures, corporations are distinct from the individuals who establish and operate them.

This separation means the corporation itself can own assets, enter contracts, sue and be sued, and even possess its own credit ratings.Key components of a corporation include its board of directors who make high-level decisions as well as the shareholders who invest their money in the company and, in return, get a say in some of these decisions.

When you incorporate a business, you’re creating a legal “person” that exists independently, carrying its own set of rights and obligations.

A sole proprietorship doesn’t have a formal formation process other than getting a DBA (if you want one), business licenses (if needed), or permits (if your business needs them).

A corporation is a legal business entity that removes the legal liability of a stockholder from being personally liable for corporate debts. Each state has individual laws regarding corporations, however, many states follow the Model Business Corporation Act.

From safeguarding personal assets to attracting investors, incorporating provides several advantages that can set your business up for long-term success.

Benefits of forming a corporation include:

• Limited liability: You are generally not responsible for the debts of the corporation. If someone sues the corporation, they usually can’t go after the personal assets of the shareholders.
• Ability to issue shares: Your corporation can sell shares to investors to raise money.
• Unlimited number of investors: This is important for growth.
• Unlimited classes of shares: Issuing classes of non-voting or limited voting shares allows you to keep control of the corporation.
• Ability to go public: You can become a public corporation, selling shares in the stock markets.

Corporations shine when it comes to benefits like legal protection. Incorporating a business shields the personal assets of owners from potential business debts or liabilities. Another standout advantage is the ability to raise capital by selling shares. This feature often makes it easier for corporations to secure investments or financing, propelling growth and expansion.

Legally, you and your sole proprietorship are considered the same entity. Someone who sues your business is also suing you. That means everything you own – your bank account, home, car, etc. – can be impacted by litigation.

A sole proprietorship’s net business income is taxed at the business owner’s individual income tax rate.

C corporations are taxed corporate income tax on any corporate profits. In the eyes of the IRS, C corporations are recognized as separate taxpaying entities. Additionally, the owners of the corporation will also pay personal income tax on corporate profits. This creates the issue of double taxation.

Corporate taxes can be beneficial for business owners, as corporate tax returns deduct medical insurance and fringe benefits. Additionally, corporations can deduct losses more easily. Lastly, any earned profits can be left within the corporation, enabling corporations to plan taxes, leaving more room for potential tax advantages.