Benefits and Drawbacks of Structuring a Business as a Corporation

When starting a business, one of the key decisions to make is how to structure your company. There are a variety of different types of structures available, including sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. A corporation can offer a number of advantages, but this structure may only be appropriate for certain types of businesses. An attorney who has experience in business law can provide guidance on whether a corporation is the ideal business structure, and they can also ensure that the proper procedures are followed when incorporating a business.

The Benefits of Incorporating Your Business

• Limited liability: One of the primary advantages of forming a corporation is that it provides liability protection for its shareholders. In other words, assets that are personally owned by shareholders will generally be protected from business liabilities and debts incurred by the corporation. If the business faces lawsuits or financial troubles, assets like cars or homes owned by shareholders cannot be seized.
• Easier access to capital: Corporations have an advantage when it comes to raising funds through issuing stocks or bonds. Investors are often more willing to invest in corporations because they can easily buy or sell shares in publicly traded companies.
• Tax flexibility: Depending on how a corporation is structured, there may be tax benefits available. C-corporations allow for deducting many expenses like healthcare costs or retirement plans that can help lower taxable income at both corporate and individual levels, while S-corporations minimize self-employment taxes, since income may be treated as pass-through earnings, and tax deductions may be available.
• Continuity and perpetual existence: Incorporation ensures continuity even if something happens to one owner or shareholder. A corporation’s bylaws can detail the procedures that will be followed if an owner leaves the business, ensuring that operations can continue without disruption.
• Professional Image: Being structured as a corporation can give potential customers, clients, and investors more confidence in a business. The presence of “Inc.” or “Corp.” in a company name often signals stability and professionalism.

The Drawbacks of Incorporating Your Business

• Complexity and costs: Forming a corporation involves more paperwork and legal formalities compared to other business structures like sole proprietorships or partnerships. 
• Increased regulations: Corporations are subject to more government regulations than other types of businesses. They must comply with various laws concerning shareholder meetings, record keeping, financial statements, mandatory reports, etc. 
• Double taxation: C-Corporations may face the drawback of double taxation. Corporate taxes will apply to profits earned by the corporation, and if dividends are distributed to the company’s shareholders, those dividends are also subject to individual income taxes. This can result in higher tax burdens for business owners.
• Less flexibility in ownership structure: Certain ownership restrictions apply to corporations. Only individuals or entities that meet specific requirements can become shareholders, limiting flexibility.
• Disclosure and compliance requirements: Corporations must meet certain requirements, such as holding regular shareholder meetings, keeping detailed financial records, filing annual reports, and notifying regulatory agencies about significant changes.

Contact Our DuPage County Business Formation Attorney

If you are considering incorporating your business, it is essential to speak with a knowledgeable business attorney. At the Gierach Law Firm, our experienced Naperville business formation lawyer can guide you through the incorporation process and help you make informed decisions about how to structure your company. We will make sure you understand the legal requirements that will apply to your business and the steps you can take to develop a winning business strategy and maintain ongoing success. Contact us today at 630-756-1160 to schedule a consultation.