Business patterns are unpredictable. A business may be doing well in one season and struggling in the next. When cash flow is slow, the business owner must look for creatively sustainable options to improve operations. One of the best solutions is to form a S-Corp, or seek credit financing.
Incorporating a business is overwhelming. However, hiring a business consultant can help you jump the hurdles. Both small enterprises and big-sized companies can benefit from corporations. Incorporating a business is a long-term goal.
Many small businesses are sole proprietorships and remain sceptical about incorporated ownership. While an individual may lose immediate control of decision-making processes, the business gains in many ways. However, shifting to a corporation offers numerous benefits to the shareholders.
What is incorporating a business?
Incorporating a business is setting a firm as its own entity for recognition by the state. Incorporating a business is different from registering a brand. A registered company is responsible for notifying the government about its existence in the market.
In a nutshell, a partnership or sole proprietorship is one, and there’s no difference between you and the business. Consequently, the business assets are liable for taxation, debt payment, and credit.
On the other hand, incorporating a business makes it a legal entity separate from the individual or proprietor. The company is independent of the individuals. As a result, the proprietor is not liable for any liabilities.
Does incorporation change taxation trends?
Incorporating a business does not change taxation. This is because corporations are recognized differently by the state. How the firm is taxed depends on the type of legal structure in place.
Forms of incorporating a business
A business can take any of the following models;
- S corporation
- Single-member or multi-member corporation
What are the advantages of incorporating a business?
There are several advantages associated with a sole proprietor or partnership.
- Protects personal assets
Incorporation safeguards personal assets from aggressive third parties. Debts are synonymous with auctioneers, debt collectors, and other interested parties. Adapting a corporation business model separates the owner from the business. An LLC model also has the same benefits.
- Brand posterity
An incorporated business surpasses the existence of the owner or partners. The company continues running should the owners pass away or the management change. However, a sole proprietorship or partnership lives on the goodwill of the owners.
- Enhanced credibility
Potential partners, customers, and clients have more trust in incorporated businesses than individuals. It also safeguards your brand and marketing.
- Tax deduction
Corporations may deduct business expenditures, such as salaries, before paying the business owners. Additionally, corporations tax flexibility. A business is taxed differently from an individual. Further, a corporation can prevent double taxation on personal and corporate profits.
- Easier access to loans
Corporations can raise money to enhance cash flow by selling bonds to shareholders. Further, credit banks give incorporated businesses loans faster and at a relatively low-interest rate.
Incorporating a company is an excellent move towards growth and expansion. An incorporated business is more stable than sole ownership.