There are many benefits of incorporating, ranging from liability protection to tax benefits. The primary reason many businesses incorporate is limited liability. Both corporations and LLCs allow owners to separate and protect their personal assets. In a properly structured and managed company, owners should have limited liability for business debts and obligations. Sole proprietors and general partners in a partnership are personally liable for all debts and obligations of the business. This includes loans, judgments resulting from litigation, and business losses.
Incorporating also makes it easier to raise funds for the business. Issuing stock to be purchased by investors is more advantageous than taking a bank loan. The same can be said for corporate bonds. Forming a corporation also provides numerous tax benefits. Corporations are taxed at a lower rate than individuals. Both regular corporations and LLCs may deduct normal business expenses, like salaries, before they allocate income to owners. Corporations can also deduct 100 percent of medical insurance premiums. Because corporations are separate legal entities (individuals in the eyes of the law), they can own shares in another corporation and receive corporate dividends 80 percent tax-free.
Less tangible but not less important benefits to incorporating are name protection and the credibility that comes with it. Most states will not let another business file articles of incorporation with your exact name. This reduces confusion and helps you establish your brand. It also adds credibility. Having "Inc." or "LLC" after your business name adds instant authority. Consumers, vendors, and partners may prefer to do business with an incorporated company.
Finally, there is perpetuity. Permanence results from incorporating—whether you start with one person or several. As long as the owners comply with federal and state regulations, and keep filings up-to-date, a corporation exists forever. The only way to end a corporation is through dissolution.