For small business owners, incorporating a company incorporation guide online is a smart move. Many small business owners fail to do this crucial step, and miss out on many benefits. Incorporating a company is an important step towards small business success. It provides tax savings, limited liability protections for their assets, and many other benefits.
Most businesses begin as sole proprietorships. This means that you are the only person responsible for the company’s liabilities. To pay the debt, creditors can seize your personal assets such as your home and vehicles. You become a shareholder in the corporation with incorporation protections. This means that you are not personally responsible for the company’s debt if it goes bankrupt, or is closed for other reasons. Only the amount you have invested in the company is your responsibility.
Because they have access to more capital sources, corporations can grow faster. You can “go public.” To raise equity capital, you can incorporate a company and issue or sell stock to shareholders. This usually does not incur interest nor repay the company. You lose a portion of your ownership when you sell shares.
You are creating a permanent entity by incorporating a business. The corporation will continue to function even if the shareholders die, sell all their shares or there is a change of ownership.
Higher Business Profile
Because of the corporation’s limited liability and other benefits, it is easier to attract investors. This is not all. Because people are more likely to consider corporations established and stable, it is a good idea to incorporate a company.
If you are sole proprietor, self-employment tax is due on the profits. In contrast, if you incorporate a company, self-employment tax is only applicable to the salary you earn.
Let’s say your company has $200,000 in gross income in 2011. You will get $100,000 after your deductions. How can having a corporation that takes $100,000 as a salary and as dividends help you save money?
. You must declare the full $100,000 earned from self-employment if you are a sole proprietor. These earnings will also be subject to self-employment taxes of $12,283. You can deduct half of this amount from your gross income.
. You can also choose to receive a $20,000 dividend or $80,000 salary by incorporating your company. Total employment tax liability amounts to $10,640. Your corporation does not receive a deduction for any employment taxes it pays. The dividend/salary strategy will help you save over $1,600 on your 2011 employment tax liability.
You can also avoid double taxation by incorporating your company as an S-corporation and enjoy even greater tax benefits. When deciding whether to incorporate your business and, if so which type of entity, you need to take into account many factors.