Incorporated businesses, otherwise known as corporations, are the businesses in which there is not one sole proprietor (or partners) of the company; instead, the company has multiple shareholders. The incorporated business is structured differently as compared to non-incorporated companies.
Incorporated businesses have their own merits and demerits. However, the merits outweigh the demerits. This article is to help you get a clear understanding of an incorporated business and how you can incorporate a business. Undoubtedly, incorporation is good for the sustainable development of a business. Let's go into more detail!
Incorporated Business: Advantages
An incorporated business has many advantages, a few of which are discusses below:
1. Business longevity
Incorporation helps to expand the life of your business. Companies that are not incorporated have normally less financial stability, and in the event of some recession, such companies are more likely to collapse. Another advantage is that suppose your company is incorporated; your company can continue operating in your absence and grow in case of your sudden demise.
2. Limited liability
This is one of the main benefits of an incorporated business. In case the company fails, or the company is sued, and it is not incorporated, the sole proprietor might lose all of his assets, which is not the case in an incorporated business. Incorporated business protects your assets.
3. Lower tax rate
An incorporated business gives you a huge benefit when it comes to paying taxes. The premiums that are paid by your company for medical insurance etc. are 100% deductible if your company is incorporated.
4. Tax deferral
The tax of a company is much lower as compared to an individual due to the potential for large tax deferral. Suppose an individual pays 30000$ tax on 100000$, if the same amount is earned by an incorporated business and not withdrawn, would have a tax of 13000$ only.
5. Offset losses
Incorporated businesses have a great advantage when it comes to offsetting losses. First of all, all the loss in not faced by one person due to incorporation. Secondly, if a loss is to happen, it can be offset by the future profits made by the company.
6. Payout options
Payout is done in the form of dividends to the stakeholders whenever the company makes a profit. The payout can be in the form of cash or shares.
7. Securing funding
Securing your funds is one of the top priorities of any business. An incorporated business provides the best and safest solutions to secure your funds and use them to grow the corporation.
8. Tax exemptions when selling
If you sell a non-corporate business, you might end up paying half of the business price in the form of taxes, which is not the case with incorporated business. The tax implied on incorporated business is significantly less as compared to non-corporate businesses.
Incorporated Business: Disadvantages
Company expansion, protection of liabilities, and smooth operation are some of the reasons why a business is incorporated, but the main reason for business incorporation is that companies can raise money in large amounts to expand the business. This is achieved by selling shares to investors.
However, the downside to an incorporated business is that the amount of tax applied is double, which the company pays on its own. The shareholders of the company have to pay their taxes, which apply to the company's income. Another downside is that the company's founder loses control of the management.
How to Incorporate a Business?
Okay, so next up, we will teach you how to make a business incorporated and all the basic steps you need to follow to get your company registered.
1. Name your business
The first and foremost step to incorporate a business is choosing a business name. A name is the identity of your business. It should represent what you do. A name must be easy enough to easily remember it as it will represent your company throughout its life. The name you think must then be checked whether there is already a corporation with a similar name or not. It is always a good practice to keep a backup option in case another company with the same name exists.
2. Choosing a location
The second step is choosing a location for your business. This is the location where your headquarters will be. It is a good thing so situate your company in an area that is easily accessible for people, especially your customers. Another factor that you must consider when choosing your location is to select a state or city which does not have a very high cost for incorporation and tax-related matters, as these costs may vary from state to state.
3. Type of corporation
The type of corporation you are going to select is very crucial, as each type has its pros and cons. You can select from 3 major types of corporations.
· C Corporation
· S Corporation
· LLC
Each of these 3 is slightly different. It is best to consult some tax lawyers for the best option suitable for your business needs.
4. Company Directors
The next step is to choose the board of directors for your incorporated business. Every incorporated business is run by a group of directors that are responsible for all the major company decisions. Choosing good and capable directors can have a great impact on the success of the company.
5. Types of shares
The next step towards building an incorporated business is deciding what types of shares you want to sell. There is public limited in which any individual can buy shares of your company, but in most cases, a corporation is privately limited, which means that the shares that are sold are limited in numbers (sold to directors).
6. Obtaining certificate
The next step is getting a certificate from the corporate office of your state. The paperwork contains all the necessary information such as the name of the company, the director's name and location, etc.
7. Filing the paperwork
The last step towards making your business, an incorporated business is taking all the required documents and certificates that we discussed in the previous steps and submitting them to the state along with the fees required to register your company. You can either hire an attorney or submit it yourself, whichever method suits your budget.
Incorporating your company is a big step. You should take your time and perform every step carefully, keeping all the consequences in mind.
Conclusion
Incorporating your business is a step forward towards achieving something great. It has a ton of advantages and allows you to take your business to an international scale and reach the next level of success.
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