What does having a corporation mean? Should I incorporate or not?
I have been asked several times what having a corporation means, and should I incorporate it or not?
So, the answer to the first question is that you need to understand what a corporation means and its benefits:
- 1. Separate legal Entity:- Having a corporation is a separate legal entity separate from you; it will have the same rights as a natural person, including owning a property, getting loans, and entering into contracts.
- 2. Limited Liability:- You as a shareholder are not responsible for corporate debts. If your corporation goes bankrupt, your shareholders only lose up to what they invested.
- 3. Continuous Existence:- Corporations live on until they wind up or go bankrupt. With other business structures, a business stops existing when the owner dies.
- 4. Lower tax rates:- Corporations are taxed separately from their owners. Corporate tax rates are lower than the personal tax rates
Now comes the other question, “should I incorporate”? The answer is “it depends.”
My answer depends on several other questions that I will have after this?
- 1. What is your long-term goal with your business? Do you want to continue building a brand or do it for ashort-termhobby?
- 2. How much is your expected earnings in business?
- 3. How much money do you need for your personal purposes?
- 4. Do you want to keep the money in the corporation for the long run, or do you wish to withdraw all the money every year for personal purposes?
So there are several benefits of incorporating, but the end question is how much money you want to keep in the corporation. If you withdraw all the money you make in the corporation, there is no benefit of having a corporation from a tax perspective; you pay the same tax under personal and corporation and have added administrative expenses.
But if you are earning more than you need for your personal purposes, you can keep the additional money in the corporation and do better tax planning.
So, the answer is it can be looked at different stages of business to understand the requirement of incorporation as circumstances and situations change.
There are other factors and benefits to incorporating that as well can be looked at on client situation as every case and situation is different.
Contact us today to learn how we can help you to
design your business structure.
Comment
Rakesh
good service