Deciding on Business Structure
Before you incorporate, consider these pros and cons.
The corporate structure is more complex and expensive than most other business structures. A corporation is an independent legal entity that's separate from its owners, and, as such, it requires complying with more regulations and tax requirements.
The biggest benefit for a small-business owner who decides to incorporate is the liability protection he or she receives. A corporation's debt is not considered that of its owners, so if you organize your business as a corporation, you're not putting your personal assets at risk. Also, a corporation can retain some of its profits without the owner paying tax.
Another plus is the ability of a corporation to raise money. A corporation can sell stock, either common or preferred, to raise funds. Corporations also continue indefinitely--even of one of the shareholders dies, sells the shares or becomes disabled.
The corporate structure, however, comes with a number of downsides as well. A major one is higher costs. Corporations are formed under the laws of each state with its own set of regulations. You'll probably need the assistance of an attorney to guide you. In addition, because a corporation must follow more complex rules and regulations than a partnership or a sole proprietorship, it requires more accounting and tax-preparation services.