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Pros and Cons of Incorporation

Pro’s of Incorporating your Florida Business:

  1. Sole proprietorship and partnerships are subject to unlimited personal liability when it comes to business debt. Creditors of the business can hold the owners of the business personally liable for debt and can move to seize the proprietor’s or partner’s home, savings or other personal assets. The shareholder of a corporation has only the money he has put into the company to lose, and usually no more.
  2. A corporation has the most enduring legal business structure. If a sole proprietor or partner dies, the business ends or it may become involved in various legal entanglements. Since a corporation has a life of its own, it may continue on regardless of what may happen to its individual officers, managers or shareholders. Also, ownership of the business may be transferred, without disrupting operations, through the sale of stock.
  3. Capital can be more easily raised with a corporation. This may be accomplished through the sale of stock or other equity interests. With sole proprietorships and partnerships, investors are much harder to attract because of the personal liability issue. For example, if the investor in a sole proprietorship (or some forms or partnerships) wants a share of the business for his capital contribution, he could become subject to a demand on his personal assets from creditors if the business becomes insolvent.
  4. With partnerships, each individual general partner may bind the business to arrangements that may result in serious financial difficulty. A corporation’s shareholders cannot legally commit the company by their acts simply because they have invested in it.
  5. Corporations can offer anonymity to its owners. For example, if a business person wants to open an independent small business of any kind and does not want their involvement to be public knowledge, their best choice is to incorporate. If they open as a sole proprietorship they will clearly be identified as the owner. Also, if they are involved in a partnership this will most likely become a matter of record.
  6. Corporations offer the advantage of allowing tax-deductible benefits such as health and life insurance, travel and entertainment deductions as well as providing an increased tax shelter for retirement plans.

Con’s of Incorporating your Florida Business

Though few, there are some disadvantages to incorporating your business. You may decide not to incorporate due to one of the following reasons:

  1. Maintaining a corporation requires more paperwork and record keeping than sole proprietorships. Each individual state has its own legal procedures and regulations for forming and maintaining a corporation in good standing.
  2. It is usually more costly to set up a corporation than any of the other major business structures. If you incorporate with a lawyer, fees likely run between $500 to $2,000 or more.
  3. If the profit from a business is not significant, there may not be enough income to take advantage of the tax and other benefits of a corporation.

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