Why Incorporate?

You may have already made up your mind that you want to do business as a corporation. This is especially true if you've been in the business world for some time. You already know that the corporate form is the dominant business form for established businesses.

However, if you are looking for more reassurance, here it is.

The owner (shareholder) of a corporation has the benefit of the so-called corporate veil or shield. The veil or shield exists because, in the eyes of the law, a corporation is a separate entity that is distinct from its shareholder or shareholders.

For example, assuming no special circumstances, a creditor of the corporation can't take the personal assets of the owners (shareholders). Likewise, assuming no special circumstances, a creditor of a shareholder can't take the corporation's assets.

As a further illustration of the corporation's separate existence consider the following. It is possible for the corporation's sole shareholder to go through bankruptcy while his or her corporation does not. Likewise, a corporation can go through bankruptcy while its shareholder does not.

Corporations are afforded superior tax advantages. Moreover, people that do business in the corporate form benefit from the fact that their corporation uses a separate taxpayer identification number -- called a Federal employer identification number (FEIN) -- and NOT their individual social security number. The use of a separate FEIN tends to distance corporate matters from personal matters.

Finally, all other things being equal, corporations are audited by the IRS at a lower rate or frequency than unincorporated forms such as the sole proprietorship.

The way you do business reflects on you. Doing business as a corporation is a positive statement. It says you are serious about your enterprise and that you plan to be around tomorrow.