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The advantages of a corporation

If you have a business—or you’re thinking about starting one, an important step is deciding on a business structure for your company. There are many advantages of a corporation, from tax breaks and liability protection, to the credibility that comes along with it.

Limited personal liability

One of the greatest advantages of incorporating a small business is that it’s considered a separate entity from its owner. This means if your business is sued or owes any debts, your personal assets will not be at risk. The same protection extends to all shareholders of the business. However, there is one important caveat to keep in mind:

"Maintaining the limited liability of a corporation requires that the shareholders and directors follow all the rules of governance, including holding annual meetings and maintaining meeting minutes."

Shawn G. Rice, Corporate/Incorporation lawyer, Wisconsin

Taxes

As the owner of a corporation, you file your business taxes separately from your personal taxes since a corporation is a separate legal entity. You only owe taxes on your individual profits, such as salary, dividends, and bonuses. The corporation has its own corporate tax rate based on profits, which is typically lower than your personal income rate.

Another tax benefit is that a corporation can deduct the costs associated with employee medical insurance and retirement plans. Losses can also be deducted, which is not the case with all business structures. This can further reduce the amount of taxes your corporation will owe.

Credibility and growth potential

Because of the limited personal liability, corporations are often attractive to potential partners, investors, and associates. In addition, new employees can be attracted by stock options and the inherent credibility of a corporation.

Easy ownership transfer

A corporation is considered a legal entity, so it will still exist after the owner sells it. In fact, transferring ownership of a corporation is easy because it only involves transferring share certificates to the new owner.

Corporations continue to exist even if the owner passes away. Liquidation is the only way to end a corporation's existence.

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