The words above are bold words but true none the less.
Startup companies like yours are poised to make huge profits in today’s economy, but only if handled correctly. The Small Business Administration notes that 4 out of 5 businesses’ that start today, will fail in the next 3 years.
To add insult to injury, did you know that you have a hidden partner that will be taking money out of your pocket, and doing nothing in return?!?
That thieving partner is Uncle Sam and all his little nephews! All levels of government want to have a part of your hard earned money in the form of TAXES, PENALTIES and FEES. They are ALL eating away at your money, in fact banks classify the self employed like the unemployed.
Most people that are looking to create a business are looking for one or more of the following:
- Protect their personal assets
- Save substantial amounts of taxes
- Defend themselves against IRS attacks such as an audit
- Prevent legal disputes and save on legal fees and hassles
- Look to successfully operate their business.
- Looking for outside funding to grow their business
There are generally 3 common business structures that are used: a sole proprietorship (a single owner), a partnership (more than one owner), or a corporation (there are also several types of corporations). Let’s forget for now about LLC or Limited Liability Companies as this is a hybrid and focus only on and address some frequently asked questions about using a corporation to carry on business. There are many advantages to corporations and it is probably the most commonly used business structure.
First ; What is a Corporation?
A corporation is an artificial person also commonly referred to as a "limited company" or just "company". A corporation is a separate legal entity created by following the procedures set out in the applicable legal statute of the state that it is created in or will do business in.
Once created, the corporation has perpetual existence separate from the owners of the corporation, and the directors and officers of the corporation. A corporation has the same powers as a natural person: for example, a corporation can enter into contracts in the name of the corporation, sue and be sued in the name of the corporation, carry on business, buy and sell property, make, spend, lend out and borrow money as well as form associations with other corporations or individuals, and even own another corporation.
What are the benefits of a Corporation?
There may be many advantages to using a corporation to carry on business or holding property depending on your circumstances. Some of the main advantages of using a corporation to conduct business include the following:
• Limited Liability: The owners, or shareholders, of a corporation are not liable for the debts and obligations of a corporation. A shareholder is only limited to the amount that they invested into a corporation (in other words the worst-case scenario is that they lose their investment). This means that, as normal rule, creditors of a corporation cannot hold the shareholders responsible for the debts of the corporation. If the corporation cannot pay its creditors, then the creditors have no right to claim payment from the shareholders. There are exceptions to this general rule either by statute or because of some act done by the shareholders to make them personally liable. Nor can a shareholder be sued because of an action of the corporation that created a liability. Of course, there are exceptions to everything. If you have concerns about these exceptions, you should seek legal advice.
• Ownership Easily Transferable: Ownership of a corporation is transferred easily by transferring the shares. It can be as simple as endorsing the back of the share certificate in favor of the new owner of the shares. The change of ownership is then recorded in the records of the corporation. However, if the corporation is actively carrying on business, the new owners will require various representations and warranties both from the seller of the shares and from the corporation. The seller will also wish to exclude liability in certain areas and limit the representations and warranties given. Also, certain technical requirements of the governing legislation must be met. Please note that as a business that may need to be licensed, a new license may need to be obtained under the new ownership.
• Perpetual Existence: Since a corporation is a separate legal entity from the shareholders, the corporation can have perpetual existence. It continues as a corporation in law even if the ownership of the corporation itself changes. This provides for continuity for the business of the corporation.
• Tax Advantages: Under income tax laws, there can be a tax advantage to operating a business through a corporation as opposed to a sole proprietorship, a partnership or some other form. If a corporation qualifies as a small business and has active income, then it can take advantage of the small business deduction and pay income taxes at a substantially reduced rate. There can be a substantial tax saving compared to doing business outside of a corporation. There are many more deductions available to corporations that are not available to individuals and the IRS for some unknown reason, is more prone to audit a person, rather than a corporation.
• Raising Capital: For a number of reasons, it can be easier to raise capital for a corporation than it is for a partnership or sole proprietor. Lenders are more willing to lend capital to a corporation. There are more sources of capital for a corporation.
Now I have highlighted a corporate business structure here more as it fulfills the majority of small business owners needs but each business like every person, is different.
I am a business profit and growth specialist and what I do is help companies like yours make more and keep more! From starting the business to getting funding to grow your business, to tax strategies to lower your tax liability, I can show you how to run a business FOR PROFIT (for very little cost).
I welcome you to call me for a free consultation on how to start and run your business into profit and not into the ground.
You are as unique as the business you want to start or have already started so there are no easy answers without us knowing more about you.
Click the link below to contact us for a free consultation.