As a sole proprietor, you may have wondered if it would be better for you to incorporate your business. Here are some things to consider…
- Incorporating a business limits the owner’s liability. However, many small corporation stockholders are required to personally guarantee bank loans for the corporation. In this case, the personal assets of the individual that guaranteed the loan are at risk. In cases where personal services are involved, the person performing the service may be personally liable for their actions.
- Operating as a corporation may make it easier to raise capital since a corporation can issue stocks or sell bonds.
- Ownership interest in a corporation is easier to transfer than in a sole proprietorship.
- Operating as a corporation allows for more fringe benefits that are deductible by the business and tax-free for employees.
- Because a corporation files its own tax returns and pays its own income tax, business profits may be taxed twice – corporate level and shareholder level. However, double taxation can generally be avoided by electing either S corporation or LLC status of the corporation.
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