In America, and other areas of the world, there are numerous and different kinds of business formations. Becoming incorporated, or a corporation, is just one of the possible types of businesses that you could form. There are also sole proprietorships and LLC, limited liability corporations, but with this article we’ll focus on incorporated businesses.
These types of business entities have a number of benefits associated with them that make incorporation a desirable thing. Typically the most cited is the tax benefits. Corporate tax is much cheaper then individual income tax, which is what is used by a sole proprietor. Because of this a corporation can allow a single or group of owners with more money to spend on operational costs and expansion.
Another important characteristic is the legal protection it provides assets. General partnerships and sole proprietors are legally responsible for all liabilities. Therefore if they were to be sued, personal assets, such as a home or car, would be at risk and possibly lost. An incorporated company can protect the owners from this by transferring the liability to the company and not the individual.
There are a number of other positive benefits to incorporating a business as well. Retirement plans and options are available for both employees and the owners of the corporation. Stocks can be used to help raise funds for the company, this of course takes the business from being privately owned to publicly owned. Corporations also have their own credit rating separate from the individual owners. It’s not impossible for a corporation to have a better credit rating then its owners.