Why Incorporate

Reduces Personal Liability
A corporation is a separate person from the one or ones who own it. Therefore, when a corporation is sued, there are provisions in the law to protect the owners (shareholders) and mangers (officers and directors) from personal liability. Once you do business with the public or have even one employee, you are wide open to legal liability. Year after year there are thousands of us who lose nearly everything we have due to personal liability with our unincorporated businesses. In addition, once you do incorporate it is important that your business follows certain, relatively simple, formalities so that it looks and acts like a corporation. It is reported that the United States has just five percent of the word's population and yet 70% of the world's lawyers. Legal experts agree that there are literally millions of lawsuits filed in the U.S. every year that would not be pursued overseas. Many of these lawsuits are filed by lawyers who must litigate just to survive. In addition to an overabundance of lawyers, the U.S. is one of the only civilized countries in the world that does not have a "loser pays" legal system. In other countries of the world, such as Canada and England, for example, the one who loses a lawsuit pays his or her own legal fees as well as those of the opponent. However, in the U.S. this scenario is much different. Even if a party to a lawsuit wins, he or she is still out his or her own legal expenses. What this means is that in the U.S. even if a defendant in a lawsuit wins he or she still loses. A corporation can provide a legal shield between your business life and your personal life.

Adds Credibility
A corporation has greater credibility in the eyes of many customers and lenders than does a sole proprietorship or partnership. When you have taken the step to incorporate it is perceived that you have long-range plans for your business. Because of the added trust, his may increase the likelihood that customers and lenders will be willing to part with their money. In this regard, a corporation may, indeed, increase your profits and ability to expand.

Tax Advantages
There are more tax deductions available to corporations than to businesses that are not incorporated. A few examples include medical expenses, pension plan, business trips and entertainment. It is reported the group with the highest percentage of tax audits is the one that includes the Schedule "C" form filed by the self-employed. The audit rate for corporations is much lower than the self-employed. You may own and be employed by your corporation at time same time, thus, eliminating the Schedule "C" self-employment return from your list of filed IRS tax documents. The IRS seems to give preferential treatment to corporations with regard to tax deduction. Deductible Employee Benefits.

Deductible Employee Benefits
Forming a corporation provides for a wide-array of tax deductions for you and your employees. Even a one-person corporation can enjoy tremendous tax deductible benefits such as health insurance deductions, travel deductions, automobile deductions, entertainment deductions, recreational facilities and many more. One of the most beneficial deductions is the pension plan or 401K. Money placed in a properly structured pension plan is tax deductible and the funds grow tax-free for retirement. These outstanding benefits alone can pay for a corporation many times over.

Anonymity
Owning an asset in your own name, such as a business, an investment property or an automobile, provides an easy target for one performing an asset search. Before initiating a lawsuit, it is quite common for an attorney to perform an asset search. If no assets can be located in your name this may decrease the chance that litigation will be pursued. Placing assets in the name of a corporation or limited liability company may provide a cloak of privacy between you and those contemplating legal action against you. This privacy is enhanced when "nominee" officers and directors are listed. With the Companies Incorporated Nominee Privacy Service, you retain ownership and control of your company. However, you elect Companies Incorporated representatives (who have no control or ownership of your company) to be listed as officers and directors in the public records.

Raising Capital
There is a greater source of capital available to corporations than to partnerships or proprietorships. Because the corporation is separate from the owners, people tend to be more willing to invest money without accepting liability or responsibility for company business. The Forbes 400 list of wealthiest Americans are full of individuals who hold the highest percentage of their wealth through ownership of stock in corporations they or their family members started. Many sole-proprietorship or partnership businesses are sold for one to two times annual earnings. Whereas, many corporations are valued at between 12 to 25 times annual earnings or more.

Separate Legal Entity Status
Because you and your corporation are two separate legal entities, lawsuits brought against your business do not need to affect you personally. When the corporation borrows money, there are measures such that you are not personally liable to repay the debt. A corporation remains after the life of the owner(s). However, a sole proprietorship ceases to exist after the life of the owner.

Broad Range of Powers
A corporation may engage in any lawful activity, including, but not limited to the following:

• Has the power to hold, purchase and convey real property and personal property and to mortgage or lease any such real and personal estate with its authorization. A corporation has the power to hold real and personal property in any state, territory or country.
• Has the power to make contracts.
• May exist continuously, even after the death of the owner(s).
• Has the power to borrow money when necessary for the transaction of its business, or for the exercise of its corporate rights, privileges or franchises, or for any other lawful purpose of its incorporation.
• A corporation can issue bonds, promissory notes, bills of exchange, debentures, and other obligations and evidences of indebtedness, payable at a specified time or times, or payable upon the happening of a specified event or events, whether secured by mortgage, pledge or otherwise, or unsecured, for money borrowed, or in payment for property purchased, or acquired, or for any other lawful object.
• Has the power to sue and be sued in any court of law or equity.
• Has have power to appoint such officers and agents as the affairs of the corporation shall require, and to allow them suitable compensation.
• Has the power to make By-Laws not inconsistent with the constitution or laws of the United States, or of the State in which the corporation is formed, for the management, regulation and government of its affairs and property, the transfer of its stock, the transaction of its business, and the calling and holding of meetings of its stockholders.
• Has the power to wind up and dissolve itself, or be wound up or dissolved.
• Has the power to adopt and use a corporate seal or stamp, and alter the same at pleasure.
• Has the power to guarantee, purchase, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of the shares of the capital stock of, or any bonds, securities or evidences of the indebtedness created by, any other corporation, while owners of such stock, bonds, securities or evidences of indebtedness, to exercise all the rights, powers and privileges of ownership, including the right to vote, if any.
• Has the power to purchase, hold, sell and transfer shares of its own capital stock, and use therefore its capital, capital surplus, surplus, or other property or fund.
• Has the power to conduct business, have one or more offices, and hold, purchase, mortgage and convey real and personal property in any of the several states, territories, possessions and dependencies of the United States, the District of Columbia, and any foreign countries as allowed by law.
• Has the power to do all and everything necessary and proper for the accomplishment of the objects enumerated in its certificate or articles of incorporation, or any amendment thereof, or necessary or incidental to the protection and benefit of the corporation, and, in general, to carry on any lawful business necessary or incidental to the attainment of the objects of the corporation, whether or not such business is similar in nature to the objects set forth in the certificate or articles of incorporation of the corporation, or any amendment thereof.
• Has the power to make donations for the public welfare or for charitable, scientific or educational purposes.
• Has the power to enter into partnerships, general or limited, or joint ventures, in connection with any lawful activities, as may be allowed by law.

Small Claims Court
A corporation may send an officer, director or an employee to represent the corporation in most small claims courts. Unlike a sole proprietorship, this can free up the time of the owner to operate the business while employees take care of legal matters.

Separate Liability for Corporate Debts
A corporation is separate from those who own it. If the corporation loses a lawsuit or has a debit it cannot pay, the corporation itself is responsible. The corporation can provide a strong shield to protect the personal assets of the officers, directors and shareholders. In contrast, with a sole proprietorship or partnership, the owners can lose personal assets in a business lawsuit. If the officers and/or directors have personally guaranteed corporate debts, of course, they can be held liable. In addition, the corporation must be established and operated properly for the corporate shield to remain in place. For maximum protection, it is legally prudent to treat the corporation as a separate legal entity. For example, it is important to pay corporate expenses with corporate money (or be sure the corporation promptly reimburses you for business expenses if you have paid them personally). Conversely, you would not pay your personal electric bill with corporate money. Instead, the corporation pays you a salary from the corporate checking account (which is a tax-deduction for the corporation). You deposit your salary check in to your personal checking account and use those funds to pay your personal electrical bill.

Perpetual Duration
A Corporation continues its life after the death of the owners. Hudsons Bay Company (HBC), for example, was founded in 1670, and is still in operation today. HBC currently operates a large chain of department stores. General Electric Company was founded by Thomas Edison in 1882 and is one of the world's largest corporations today.

Duration of Corporation Compared to LLC
Unless the operating agreement says otherwise, the life of a limited liability company may be limited upon the death, withdrawal or bankruptcy of a member. The laws of many states allow a limited liability company to have perpetual (continual) existence.

Disadvantages of Incorporating
A corporation is formed when properly drafted documents are filed in the jurisdiction of incorporation.

Corporate Formalities
Corporations have shareholders, officers and directors. One person can hold all positions in most states. A corporation is also required to hold annual shareholders and directors meetings. Personal and corporate funds should not be commingled in the same account. If corporate formalities are not followed (e.g.. the corporation is not treated like a separate person from the owners), many states allow the owners, officers or directors to be held liable debts of the corporation. Corporate formalities, while necessary, are typically quite simple.

Unless the operating agreement says otherwise, the life of a limited liability company may be limited upon the death, withdrawal or bankruptcy of a member. The laws of many states allow a limited liability company to have perpetual (continual) existence.

Disadvantages of Incorporating
A corporation is formed when properly drafted documents are filed in the jurisdiction of incorporation.

Corporate Formalities
Corporations have shareholders, officers and directors. One person can hold all positions in most states. A corporation is also required to hold annual shareholders and directors meetings. Personal and corporate funds should not be commingled in the same account. If corporate formalities are not followed (e.g.. the corporation is not treated like a separate person from the owners), many states allow the owners, officers or directors to be held liable debts of the corporation. Corporate formalities, while necessary, are typically quite simple.