Incorporation is an important step in the life of a business, but unfortunately the true value of incorporating a business is often not seen until the business faces a negative situation such as a law suit or bankruptcy. A primary advantage of incorporation is the limited liability the corporate entity affords its shareholders (owners). Typically, shareholders are not liable for the debts and obligations of the corporation; thus, creditors will not come knocking at the door of a shareholder to pay debts of the corporation. In a partnership or sole proprietorship the owner's personal assets may be used to pay debts of the business.

 

 

A corporation's life is not dependent upon its members. A corporation possesses the feature of unlimited life. If an owner dies or wishes to sell their interest the corporation will continue to exist and do business. Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation. Ownership of a corporation is easily transferable. Capital can be raised more easily through the sale of stock. A corporation possesses centralized management.

There is a certain level of complexity and expense of forming a corporation. Corporations have extensive record keeping requirements. Operating a corporation across state lines requires the corporation to qualify to do business in the other state.