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Wednesday, March 26, 2008

Should I Form an LLC or INC.?

Corporations, or businesses that operate under a corporate structure, go back as early as the 1300s. Modern corporations are similar to those during the days of trade expansion into The Americas by countries seeking riches and imports from foreign lands. By forming corporations, partner ventures could limit their liabilities in the event of unforeseen circumstances: hurricanes, reefs, wars, pirates and so on.

Today, we have the same objectives (limiting personal liabilities) and the same mechanisms (corporate entities); only the reasons and structures have changed over the years.

In the United States and other countries, there are tremendous tax incentives to further motivate business owners to incorporate. Officers in the corporation can legally pay themselves a salary for part of their income, and then pay themselves a profit dividend at a lower tax rate for the rest of their income. Further, expenses related to the business are pulled out of the profit before taxes, another huge plus of the corporation.

For these reasons, it is my hope that you will consider forming a corporate structure to protect your business and yourself from liabilities and maximize your profits.

See also my earlier blog entry “We Don’t Need no Stinkin’ Corporation.”

In my next blog, I’ll expand on how to incorporate.

JM Kelly, The IT Entrepreneur

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