Forming a corporation or a limited liability company is called Incorporating. Getting registered as a corporation can also be an online process where you have to select a state of filling and the type of entity that could be non-profit, profit or a professional corporation. Individuals incorporate their business because of its many inherent benefits. For example, if a business fails, incorporation protects an individual against the need to sell off his personal assets. In case of sole proprietorship or partnership the personal belongings of an individual become liable for paying off the company’s debts.
Incorporation also has added advantages like tax saving over partnership or sole proprietorship’s business. Various schemes like pension, medical, ownership of stock in other corporations, disability insurance premiums, stock ownership plans also help in bringing down the tax liability.
Types Of Incorporation
Corporation
Small and big corporations generally use a business corporation. This has the advantage of minimum restrictions, unlimited stockholders and an assurance of protection for individual property. Under this the liability of a stockholder is limited to the amount of investment in a business.
Limited Liability Company (LLC)
Limited Liability Companies has a separate entity from its members. Member’s rights, duties and obligations are governed by an operating agreement. The agreement is particularly important in deciding how the company and its members will be taxed for federal income tax purposes, management policy, terminating the LLC and transfer of interests. Under this agreement all the members have limited liability provision and enjoy full security of their personal assets.
Non-Profit Corporation
Businesses that undertake varied activities with an aim to do good for the society should be registered as non-profit incorporations. The income earned from the business is used for charitable, religious, educational or scientific activities. The motive of the business is not to make profit. Income generated by most of these organizations is exempted from income tax.
S Corporation
It is taxed under Subchapter S of the Internal Revenue Code. IRS approval is required for Subchapter S status. All earnings or losses are passed directly to the personal income tax return thus avoiding the case for double taxation.
About the Author: Howard Schwartz is a partner in several business strategy groups, including HJ Ventures International, Inc. Howard has worked with hundreds of entrepreneurs worldwide with a focus on writing Business Plans for companies interested in raising capital from Venture Funds and Angel Investors. For more information: http://www.incorporating-online.org
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