Many businesses begin with a single person, an exceptional skill, and a dream of owning one’s own business. However, as the business grows and profits rise, business owners often consider the benefits of company incorporation. Decisions about incorporation have several factors. The business consultants at Whyte & Associates have helped many businesses consider their options and decide when to change their company structure. Here, they offer a few factors to consider:
- Limited liability – One of the biggest benefits of incorporation is the legal protection that owners are afforded. The government considers the company a legal entity and the debt it incurs and profit it generates belong to the company, not to the owners. As a result, the owners or shareholders are not personally responsible for claims.
- Tax rates – Tax rates for trading income, passive income, and personal income vary greatly. Business owners should be prepared to discuss the personal circumstances of each shareholder and think about the tax implications of incorporation. Shareholders will need to identify whether they will be taking a salary for their day to day expenses or stockpiling profits.
- Accessing cash – Under an incorporation, the company retains business profits. They can be extracted through salaries and bonuses, dividends, or liquidating the company. Each of these strategies have different tax implications.
- Administration – Incorporating can be quite an undertaking. Owners must submit documentation of all major activity and transactions including board meetings, management conferences, and shareholder meetings. Additionally, financial transactions must be detailed and are often more complex than other business structures.
If you’re considering incorporation, let the professionals at Whyte & Associates help. We have the experience and the knowledge to assist you through the process and ensure your incorporated company is meeting federal and state record keeping guidelines. For more information or a consultation, call (909) 575-0080.
