Benefits of Incorporation
The process of incorporating can benefit a business in several ways, including providing limited liability for the owners and significant tax advantages.
"S" Corporations. An “S” corporation is a corporation that is not taxed directly as a corporate entity, but shares certain tax aspects of a partnership or LLC. That is, taxes are “passed through” to the owners. In comparison, a general or “C” corporation is taxed as an entity separate from its shareholders. This results in the concept of “double taxation”, which occurs when the corporation is taxed, and then its employees and shareholders are taxed individually on their income and dividends. There are certain eligibility requirements to use an S Corp.
Limited Liability Companies. Limited liability companies (LLCs) also benefit from the limited liability aspect of corporations. However, their legal structure is fundamentally different, and the advantages and taxation considerations can vary significantly. Corporations generally are more rigidly structured than LLCs and have more formalities under the applicable corporate statutes. LLCs can provide more structural flexibility, which can result in great costs and delays in order to organize them. Also, LLCs are “passes through” tax entities, meaning that the tax aspects flow through to the LLC owners, unlike a corporation, which is generally taxed separately.