Should I incorporate my business?
Whether or not you should incorporate your business is a question that should only be answered after consulting with an attorney, and perhaps even a Certified Public Accountant (CPA). However, we will explore some of the advantages or benefits of forming a for profit corporation in Tennessee, and the basic types of for profit corporations.
There are two (2) basic types of corporations: Standard for profit corporation called a “C-Corp” and a sub-chapter S corporation or S-Corp for short (smaller corporations).
Is there much difference between a C-Corp and a S-Corp? Yes. The major difference is the way the two types are taxed. A C-Corp or standard corporation is taxed as an entity at the flat corporate tax rate, then the stockholders are taxed for any dividends (profits received) at their own individual tax rate as reported on form 1040. S-Corps are generally not taxed as an entity, but rather the shareholders are individually taxed on the profits or their proportionate share thereof. For more details speak to an attorney, and perhaps a CPA about the specific tax issues involved in corporations.
Corporation Protects You From Liability Caused By Others
One of the biggest advantages to a corporation versus a partnership or proprietorship is protection from liability. Although you can not shield yourself from your own individual liability (you personally caused the damages) you can insulate yourself and limit your personal exposure to liability brought on by others, like employees. Here is how it works, a corporation is a separate and distinctive entity, an artificial person so to speak. If an employee makes a mistake and creates liability then the corporation is sued, and is, perhaps, responsible for payment of damages. However, in this scenario, with a properly formed and maintained corporation (in good standing, etc.) your personal assets (house, cars, saving accounts, etc.) are not at risk, only the corporation assets.
There are other advantages to incorporating your business. Contact an attorney to learn more.