Why Do You Need A Corporation?

Most businesses will benefit from operating under a corporate business form.

1. The primary reason for operating your business as a corporation is to protect your personal assets from potential liabilities that could occur in your business. Without the protection provided by a corporation, creditors or other claimants of your business can attach personal assets including garnishment of personal salary, attachment of personal bank accounts, attachment of your home in most states, and seizure of other personal assets,. If you are operating as a sole proprietorship or as a partnership your personal assets are vulnerable. By forming a corporation and following all corporate formalities, you insulate yourself from personal liability. The only amount you have at risk is property and investment that you put into the corporation.

2. Another benefit of a corporation is that it offers continuity of existence. A corporation is a separate legal entity that has a separate "life" from its individual owners. Upon the death or retirement of an owner, the corporate entity can continue on. Shares of ownership may transfer upon death or by sale. But the business entity will continue in existence until it is dissolved.

3. It is next to impossible to raise capital investment through a sole proprietorship or partnership. If your business is considering investment capital, it is necessary to do so through a separate legal entity. Investors tend to shy away from partnership investments because of a risk that their personal assets will be subject to the liabilities that may arise from the business in which they are investing.

4. There are also potential tax advantages to operating through a corporation which you may wish to discuss with your accountant.