Incorporation Protections

Incorporation is defined as the forming of a new corporation (a corporation being a legal entity that is effectively recognized as a person, albeit a fictitious one, under the law). The corporation may be a business, a non-profit organization, sports team or a government of a new city or town. 



Benefits of Incorporation in the United States 
 

  • Protection of Personal Assets or the safeguarding of personal assets against the claims of creditors and lawsuits.
    • Sole proprietors and general partners in a partnership are personally and jointly responsible for all the liabilities of a business such as loans, accounts payable and legal judgments.
    • In a corporation, however, stockholders, directors and officers typically are not liable for their company's debts and obligations. Instead, they are limited in liability to the amount they have invested in the corporation (eg: $100 in stock was purchased, no more than $100 can be lost).
    • Corporations and Limited Liability Companies (LLCs) may hold personal assets like houses, cars or boats. If one is personally involved in a lawsuit or bankruptcy, these assets may be protected. A creditor or the owner of a corporation or LLC cannot seize the assets of the company; however, they can seize their ownership shares in the corporation, as that is considered a personal asset.
  • Transferable Ownership - Ownership in a corporation or LLC is easily transferable to others, either in whole or in part and some states' laws are particularly attractive to this end.
    • For example, with a Delaware Corporation, the transfer of ownership in a corporation is not required to be filed or recorded.
  • Retirement Funds - Retirement funds and qualified retirements plans, such as a 401(k), may be established more easily.
  • Taxation - In the United States, corporations are taxed at a lower rate than individuals. Additionally, they can own shares in other corporations and receive corporate dividends 80% tax-free.
    • There are no limits on the amount of losses a corporation may carry forward to subsequent tax years. A sole proprietorship, on the other hand, cannot claim a capital loss greater than $3,000 unless the owner has offsetting capital gains.
    • Taxation Corporations can only deduct net operating losses going back two years and forward 15 years.
  • Raising Funds Through Sale of Stock - Capital from investors can be raised for corporations easily through the sale of stock.
  • Durability - A corporation is capable of continuing in perpetuity. Its existence is not affected by the death of shareholders, directors, or officers of the corporation.
  • Credit Rating - Regardless of an owner's personal credit scores, corporations, acquire their own credit rating, and build a separate credit history by applying for and using corporate credit.