An incorporation is a great option for owners of small businesses who are looking to change the dynamics of their companies. Incorporation is the creating of a separate legal entity out of your business. This entity is considered its own person in the eyes of the law, being taxed, buying, selling and owning all on its own. It is able to legally earn and hold money of its own; it is subject to legal penalties for crimes; and, of course, it is subject to taxation.
A company’s being subject to taxation may seem like a disadvantage rather than an advantage, but often this taxation is indeed a boon. Corporate income taxes are usually much lower than taxes on earned incomes of individual people. Since incorporated companies are treated as individuals in the eyes of the law, meaning they can earn and hold money themselves, money the company makes that is not transferred to other people (employees’ salaries, for example) is subject to a lower tax rate, allowing for greater reinvestment in capital or for other business-related expenses.
Aside from giving tax reduction opportunities, incorporation offers a variety of benefits to the business owner or owners. It can offer liability protection by separating the owner(s) from the company. In the case of a lawsuit, the suit may only be applicable to the company and not to the owner or owners. Incorporation also gives a sense of professionalism to the company, and the buying of stocks and exchanges often becomes easier. The process of incorporation, however, can be dubious for those who are not familiar with laws and procedures. A business lawyer can be of great value for advice and direction during the process of incorporation.
