When a small business chooses to incorporate, there are three main entities that they can choose from. These entities include the C corporation, the S corporation, or the limited liability company (LLC). Each corporate entity has its own advantages and disadvantages.
- According to the Microsoft Small Business Center, many small businesses do not want to incorporate as a C corporation because they will be taxed twice. However, S corporations provide an advantage by waiving corporate taxes.
- One reason that it's a good idea to incorporate a small business is because of the legal protection offered by incorporating. When a person incorporates her business, she creates a shield that can protect her from legal responsibility and personal liability for business debts and other problems.
- Another reason incorporating is a good idea is because of credibility. Some businesses are taken more seriously if the business has an Inc. or LLC after its name.
- According to Business Know How, there are some disadvantages to incorporating. For example, the amount of paperwork that must be completed increases, personal finances must be separated from the corporate account, and an individual may be subject to double taxation.
- One way to avoid incorporating is to establish a business as a sole proprietorship. A sole proprietorship is the oldest and most common form of business entity. With this entity, the business is not separate from the owner, and the debts of the business are the sole proprietor's legal responsibility.
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