Reasons to Incorporate
Reasons to form a corporation
Deciding to incorporate is a big step in the life of your business and since it is the most complicated business structure, incorporation should not be taken lightly. However, there are certain things that a corporation can do that other business types cannot that make incorporation the right choice for some. Here are a few examples.
- If your business needs the ability to issue stock or stock options to attract key employees or outside investment capital. Only a corporation can issue stock, so this is a key difference.
- How much money your business makes can be a deciding factor leaning towards incorporation. If your business is so profitable that you can save significant income tax dollars by keeping some profits in the corporation each year. This strategy, called "income splitting," takes advantage of the lower tax rates on corporate income of up to $75,000.
- If you own a family business and you want to begin making gifts of ownership to your family as part of your financial or estate plan or to plan for the next generation of owners. You can easily make gifts of shares in your corporation without necessarily giving up management control and, if it's done correctly, without paying gift tax.
- If others insist that you incorporate your business. For example, if you are an independent contractor, companies you want to work for may ask you to incorporate before they will sign contracts for your services. These companies don't want the IRS or another government agency to reclassify you as an employee, which is very unlikely if you are incorporated.