Should You Form A Corporation?

Mar 16 2014, 10:59am CDT | by

Should You Form A Corporation?
Photo Credit: Forbes Business

When determining whether to incorporate or not, there are no clear-cut answers. It’s really a judgment call.

Of course, you need to talk to an experienced attorney. But it is also a good idea to get advice from successful business owners.

Despite all this, there are some general things to keep in mind. In fact, to get some insight about incorporating, I recently talked to Matt Kaufman, who is an attorney and the head of small business services at Rocket Lawyer. The company has an easy step-by-step system to form any type of corporation, whether a limited liability company (LLC), C Corporation or S Corporation.

Here are some of his takeaways:

Liability Protection: This is perhaps the biggest reason for business owners to incorporate. For the most part, your liability exposure is limited to the amount of your investment in the company. In other words, if you put up only $1,000 for startup capital, then this is all you stand to lose if something goes wrong.

And yes, lots can go wrong! Let’s face it, we live in a litigious society. Even a seemingly minor dispute can wind up turning into a lawsuit. But with a corporation, you will go a long way to help protect your personal assets.

But to get this, you must abide by the requirements, such as keeping corporate and personal matters separate, making the right filings and disclosures, keeping minutes and so on.

You should also try to avoid agreeing to a personal guarantee for a loan. Such a contract will mean that your corporation provides no liability protection.

Status: By being a corporation, you look like a real business. It shows that you are serious.

Although, in some cases, you may have no choice but to incorporate. For example, a bank will likely require that you incorporate. Or, if you raise equity capital, then you will need to do so as well.

Employee Matters: As an a corporation, you have more flexibility in providing fringe benefits, such as medical reimbursement plans or term life insurance. You will also be able to offer stock options or restricted stock, which can be a great way to attract and retain top talent.

Taxes: This should not be the main reason for incorporating. But there are certainly benefits. For example, with an S Corp, you can reduce some of the impact of the self-employment tax.

Of course, things can get extremely complicated. So to help out, I have put together a guide on this.

Tom Taulli (@ttaulli) operates MasterCFO, which helps founders with accounting and taxes.  He is also the author of “How to Create the Next Facebook,” which is a step-by-step guide for creating a breakout startup.

Source: Forbes Business

 
 
 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

T-Mobile Hits Verizon with new 'Never Settle Trial' Campaign
T-Mobile Hits Verizon with new 'Never Settle Trial' Campaign
In case customers don't feel satisfied, T-Mobile will pay for them to shift back to Verizon
 
 
SurveyMonkey CEO, Dave Goldberg, Dies at 47
SurveyMonkey CEO, Dave Goldberg, Dies at 47
The cause of his death is still a mystery.
 
 
Microsoft Edge and Universal Apps are Build 2015 Highlights
Microsoft Edge and Universal Apps are Build 2015 Highlights
Microsoft CEO Satya Nadella just ended the Build 2015 keynote that brought big announcements.
 
 
Comcast Terminates Merger Agreement with Time Warner
Comcast Terminates Merger Agreement with Time Warner
It is official. Comcast announced that there will be no Time Warner deal.