Incorporating a business can be a very lucrative business strategy for many businesses. The largest benefits of incorporating a business are:
Limited Liability – The large advantage of incorporating a business is the fact that the liability is extremely limited to the shareholders. In most cases, shareholders are not liable for debts and other commitments from the corporation. A shareholder’s liability with a corporation is solely based on the amount of funds that are invested into the corporation. Creditors cannot go after shareholders for money owed from the corporation.
Perpetual Existence – Because a corporation is seen as its own “person” it is not dependent on the life of employees, shareholders, and directors to run the company. The advantage of this is that it can transfer ownership constantly through its shares.
Capital Acquisition – A corporation has the ability to gain more sources of capital compared to other business types like sole proprietorship and partnerships. The main way a corporation can gain more capital is through issuing different classes of shares.
Tax Advantages – When thinking about incorporating one of the large benefits is based around taxes. Incorporated businesses can get lower income tax rates while also being able to carry over losses from previous years to balance/offset profits in future years.
Credibility and Prestige – Overall, having a business that is incorporated gives the appearance of credibility and trustworthiness when it comes to deals with other businesses.