There are many reasons why people feel they should incorporate their businesses. Very often these reasons are based on misinformation about the advantages of being a corporation.
There are a number of things that being a corporation will not do for you. It will not automatically make you more profitable. It will not necessarily limit your liability on all transactions. It will not necessarily reduce your overall tax bill; it may, in fact, increase it. If you incorporate an existing business, you may find that your long established suppliers now require new financial statements. You may also be asked to sign a personal guarantee that you'll pay amounts owed if the corporation cannot.
With a regular corporation, business profits may be taxed twice – once at the corporate level and again when paid out to shareholders as dividends. This double taxation is generally avoided by electing “S corporation” status, but not every corporation qualifies for this election. A special kind of corporation known as the personal service corporation (PSC) has the added drawback of being taxed at a flat rate (the top corporate rate) rather than at the graduated rates available to other corporations.
Anyone considering incorporating should discuss the matter with both their accountant and attorney. For assistance, call us.