You may have already made up your mind
that you want to do business as a corporation. This is especially true if
you've been in the business world for some time. You already know that the
corporate form is the dominant business form for established businesses.
However, if you are looking for more
reassurance, here it is.
Limited Liability -- Corporate Veil or Shield
The owner (shareholder) of a corporation has the benefit of the
so-called corporate veil or shield. The veil or shield exists because,
in the eyes of the law, a corporation is a separate entity that is
distinct from its shareholder or shareholders.
For example, assuming no special circumstances, a creditor of the corporation
can't take the personal assets of
the owners (shareholders). Likewise, assuming no special circumstances,
of a shareholder can't take the corporation's assets.
further illustration of the corporation's separate existence consider the
following. It is
possible for the corporation's sole shareholder to go through bankruptcy
while his or her corporation does not. Likewise, a corporation can go
through bankruptcy while its shareholder does not.
Corporations are afforded superior tax advantages. Moreover, people
that do business in the corporate form benefit from the fact that their
corporation uses a separate taxpayer identification number --
called a Federal employer identification number (FEIN) -- and NOT their
individual social security number. The use of a separate FEIN tends to distance
corporate matters from personal matters.
Finally, all other things being
equal, corporations are audited by the IRS at a lower rate or frequency
than unincorporated forms such as the sole proprietorship.
The way you do business reflects on you. Doing business as a corporation
is a positive statement. It says you are serious about your enterprise and
that you plan to be around tomorrow.