 |
Email to Friend |
 |
Print |
|
By SCORE, Service Corp of Retired Executives
A corporation is treated by law as a physical entity. Its life is separate
from those of its owners or stockholders. The question of whether or not to
incorporate is not easily answered but it is one that should not be ignored by
growing businesses.
One of the main advantages of incorporating is that there is limited
financial liability for the owner. The firm is responsible for its own taxes
and debts. If the firm is sued for any reason, if debts are unpaid or the firm
becomes bankrupt, the liability of the owner is limited to the value of the
personally held stock. Personal assets are not at risk.
For the small business owner, other advantages, such as the ability to
transfer ownership in the form of stock shares, may be less important. A small
corporation that is successful creates its own financial stability, without
dependence on individuals. It may also be easier to reaise capital, to borrow
money and to get merchandise and service on credit. It may also be easier to
attract specialized management and to change management as may be required.
The chief financial drawback of the incorporating is double taxation. The
firm pays profit taxes, and the stockholders who in the case of the typical
small corporation are likely to be the operators of the business, pay income
taxes on the dividends they receive. That can be a stiff penalty.
| 
