Limited Liability Most small businesses that consider incorporating do so for the limited liability that corporate status affords. The greatest fear of the sole proprietor or partner—that his or her life's savings could be jeopardized by a law suit against his or her business or by sudden overwhelming debts—disappears once the business becomes a corporation. Although the shareholders are liable up to the amount they have invested in the
corporation, their personal assets cannot be touched.
Rather than purchase expensive liability insurance, then, many small business owners choose to incorporate to protect themselves.
Raising Capital It can be much easier for a corporation to raise capital than it is for a partnership or sole proprietorship, because the corporation has stocks to sell.
Investors can be lured with the prospect of dividends if the corporation makes a profit, avoiding the necessity of taking out loans and paying high interest rates in order to secure capital. However, from a banker's perspective, a newly formed corporation is a more risky loan applicant
than an individual with a home and other assets. Attracting Top-Notch Employees Corporations may find it easier to attract the best employees, who may be lured by stock options and fringe benefits.
Fringe Benefits One advantage C corporations have over unincorporated businesses and S corporations is that they may deduct fringe benefits (such as group term life insurance, health and disability insurance, death benefits payments to $5,000, and employee medical expenses not paid by insurance) from their taxes as a business expense. In addition, shareholder-employees are exempt from paying taxes on the fringe benefits they receive. To be eligible for this tax break the corporation must not design a plan that benefits only the shareholders/owners. A good portion of the employees (usually 70 percent) must also be able to take advantage of the benefits.
corporation, their personal assets cannot be touched.
Rather than purchase expensive liability insurance, then, many small business owners choose to incorporate to protect themselves.
Raising Capital It can be much easier for a corporation to raise capital than it is for a partnership or sole proprietorship, because the corporation has stocks to sell.
Investors can be lured with the prospect of dividends if the corporation makes a profit, avoiding the necessity of taking out loans and paying high interest rates in order to secure capital. However, from a banker's perspective, a newly formed corporation is a more risky loan applicant
than an individual with a home and other assets. Attracting Top-Notch Employees Corporations may find it easier to attract the best employees, who may be lured by stock options and fringe benefits.
Fringe Benefits One advantage C corporations have over unincorporated businesses and S corporations is that they may deduct fringe benefits (such as group term life insurance, health and disability insurance, death benefits payments to $5,000, and employee medical expenses not paid by insurance) from their taxes as a business expense. In addition, shareholder-employees are exempt from paying taxes on the fringe benefits they receive. To be eligible for this tax break the corporation must not design a plan that benefits only the shareholders/owners. A good portion of the employees (usually 70 percent) must also be able to take advantage of the benefits.
