Incorporations and are different than unincorporated sole proprietorships and partnerships in some very distinct ways. Here is a short run down of some advantages and disadvantages that incorporations have over other types of businesses.
- Tax Benefits: Incorporations have access to certain to lower corporate tax rates. This includes the possibility of a “small business deduction” that can be applied to incorporations.
- Limited Liability: As mentioned before, one alternative to incorporating is a sole proprietorship. This means that owners will be personally responsible for the company’s financial well-being. With an incorporation, the shareholders and owners of a company will have limited liability if the company is doing poorly financially.
- Name Protection: When you incorporate, the name of the business is kept safe. This means that no other incorporation can infringe on the name your company has registered. A sole proprietorship will have a harder time protecting their company name.
- Capital Gains Exemption: Under certain circumstances, a small incorporation can be exempt from capital gains taxes. This is not a benefit provided to other businesses such as a partnership or proprietorship.
- Continued Existence: When incorporations move ownership or shareholder, the company can continue to exist. It can be sold from one person to another once incorporated. A sole proprietorship will have assets that can be sold to another person or company, but the company will dissolve if the owner no longer participates in the business.
There are many benefits to incorporating your small business. Between tax benefits and ability to sell the business, it is worth the consideration if you are a small business owner.