What is a CORPORATION?
This may be hard to imagine for micro-business and home-based business owners but corporations are entities that are completely separate from their owners. As you can imagine, the major benefit to this is that you are not personally responsible for any debts or obligations of your business. Anything outside of the corporation is perfectly safe from any lawsuits your business may incur…and because corporations have been the entity of choice for hundreds of years, there is plenty of case law supporting their liability protections.
What are the Advantages of a Corporation?
Personal liability protection: Any creditors who come knocking or lawsuits filed against your business can’t affect you personally. You can rest assured that no matter what happens in the business, your family’s assets are safe.
Flexible tax status: Corporations are automatically taxed as Corporations, however you can elect S-Corporation status and choose to take advantage of pass-through taxation for your business.
Flexible management:
Hundreds of years of case law: While LLCs and other entity types remain relatively new and unproved in most states, Corporations have been around for hundreds of years and offer relatively few surprises when they are challenged in court.
No ownership restrictions: You can have as many owners as you wish. They can be foreigners or even other entities!
Free transference of ownership: You can transfer your shares (in the form of “stock”) as often as you wish. Corporations offer the most flexibility when it comes to transferring shares. If you ever wondered why so many public companies are corporations, this is why!
Unlimited life-span: While other entities such as LLCs and limited partnerships have limited life spans, corporations automatically exist in perpetuity until they are dissolved. This is completely independent of the life span of the corporation’s initial owners. If you’re looking to build a legacy, a corporation may be your best bet!
You can pay yourself: Corporations allow the managing owners to pay themselves tax-deductible paychecks like all other employees. This is a great way to avoid the self-employment tax that you would be subject to under other entity types. You can also offer yourself tax-deductible fringe benefits such as direct reimbursement of medical expenses. Since these aren’t considered taxable income to the employee, these fringe benefits are essentially tax-free.
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