Law Offices of David J. Harter

A Professional Corporation

Articles: Articles: Should the Business be Incorporated*

Incorporation in the nineties means much more than just liability protection. Incorporation can also mean attractive tax advantages, the road to better financing, and the ability to raise cash with stock offerings. There are many charts available that contrast the advantages and disadvantages of incorporating your business. And while they might give a general ideas of what can be gained, and lost, there is no substitute for actual discussions of the specific objectives and goals of your company with an attorney that is qualified in this field.

Corporations are formed, among other reasons, to shield shareholders from personal liability for the corporation's activities. However, the corporation must act like a corporation in order to qualify for the legal protection and tax advantages the corporate form offers. Unless all corporate formalities and requirements are adhered to, the shareholders may be personally liable under the "alter ego" theory of liability. In such cases, the corporate entity may be disregarded (the corporate veil "pierced") and the shareholders held personally liable for the corporate debts.

To avoid problems, the corporation should diligently adhere to all corporate formalities. A careful review by legal counsel as to whether a corporation is adhering to the numerous requisite formalities is advisable in order to prevent personal shareholder liability.

POSSIBLE CORPORATE ADVANTAGES:

• Limited Liability
• Shareholder are protected from liability for corporate debts that exceed the assets of the business.
• Financing
• Traditionally, investors tend to finance corporations before financing sole proprietorships or partnerships.
• Tax Advantages - Federal tax benefits for shareholders may be realized in many cases by filing an S Corporation.
• Election.
• Public Offerings
• Rather than having to personally borrow money as in a sole proprietorship, or having to bring in more partners, a corporation has the ability to transfer shares to raise capital for expansion, equipment, or development.