Dear Business Owners,
Did you know that over 45,000 companies have filed for bankruptcy in the past 3 years? That’s a lot of people and a lot of businesses.
One reason for this is because the economy has been hit hard by the 2008 recession;
however, another major cause is that many businesses operated as small family-owned entities,
and at some point there was not enough money to keep it going.
There are no easy solutions to this problem; however, there are ways to protect your business from bankruptcy if you’re willing to try something new.
One way to solve these problems is to make your business more like a corporation;
this gives you the option to protect yourself from bankruptcy, but it eliminates some of the flexibility that makes your business unique.
There are different reasons for incorporating your business, but here are some common benefits to incorporating your company:
Eliminate Ownership Taxation
As an individual, you will pay 15% of the value of every stock you own (this is known as “taxation” or “excise tax”)
which can actually be quite staggering if you own several businesses.
It is also important to note that if you sell your business or if that business goes bankrupt, you must pay taxes on the amount you made from the sale.
Let’s say your business is worth $10 million and you receive $5 million in proceeds from the sale.
You will need to pay $1.5 million in taxes.
The government may also require taxes on any gains or profits made by your company due to inflation or other means;
however, there are several exemptions and different ways to get around this tax (that’s a whole story by itself).
Capital Expenditures Automatically Automatically Depreciate
As a sole proprietor, you can depreciate your purchases on your own.
This means that the business will lose the value of your purchases over time.
In a corporation, things can get a bit more complex because you have to consider all of the shareholders.
However, things are still relatively simple because you do not have to use all of your capital at once;
instead, your company can spread out its expenditures over several years.
Take Advantage of Special Tax Exemptions for Businesses
Corporations are special entities that offer tax exemptions that individual owners do not always take advantage of.
For example, a corporation can accept a lease on a building and the capital expenditures for that building will be tax deductible.
A corporation can also make donations to charity, and the corporation itself will not be taxed for this donation.
Reduce Your Personal Liability
If your company is sued or gets into trouble, you will not have to pay the entire cost of litigation.
If that happens, then you can protect your personal assets from lawsuits by incorporating your business.
In fact, most corporate lawyers recommend having separate corporate and personal bank accounts
so that any personal funds do not get mixed up with corporate funds.
This may sound like a lot of work, but these benefits will greatly improve your business’ sustainability
it can be well worth the effort. If you would like to learn more about incorporating your company,
I encourage you to contact an attorney or business advisor that specializes in laws that govern businesses.
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Corporations are not quite like real people.
Corporate managers and shareholders often understand this,
and as a result, the rules governing corporations are quite different from those for people (which is why we can’t sign our wills as “We, the People”).
The Corporations Code is actually a set of rules for running a non-human business.
As such, it contains many extraordinary provisions that would not be found in most other legal regimes.
These provisions include:
Every corporation has a President and Vice President who must be named in its articles of incorporation/constitution.
A corporate board of directors – composed of the president and vice president – responsible to serve as managers of the business.
Corporations have a governing body of directors, who may be selected in a variety of ways.
The Code requires the board to establish a compensation committee for this purpose.
Corporate directors have certain duties and obligations, including a duty of care.
A corporation’s shareholders may establish the board’s size, but the Bylaws need not specify any minimums or maximums.
In some instances, corporate officers might also be considered members of the board.