Comparing Corporation to Sole proprietorships

Choosing a legal structure for your new business is one of the primary and most vital decisions you would make as an owner. Operating as a sole proprietor offers the advantages of easy set-up and few regulatory requirements while incorporating your business provides a framework for future expansion. But in all cases, a corporate kit is essential for whatever business structure you choose.

Formation Requirements

A corporation is an independent legal entity, whereas a sole proprietorship may be a commercial activity operated under the owner's name. Business owners file articles of incorporation with a state business registrar to make an organization. The incorporation process can cost a few dollars and take an amount of your time. Comparatively, most states don't require sole proprietors to register before they begin doing business. As long as you use the business under your name, you'll start the business without paying any upfront costs and on your timetable.

Limited Liability

A sole proprietor is the only person liable for all the business Liability. Business creditors can satisfy a judgment against your assets, like your house and family bank accounts. Also, sole proprietorship operates under the Social Security number of the business owner. Credit transactions involving the business show abreast of your credit report. Incorporation provides shareholders with a liability shield. A business creditor can only satisfy a judgment against the corporation's assets. Also, an organization has its taxpayer-identification number and doesn't use the Social Security numbers of shareholders.

Ease of Management

Corporations are complex business entities that are highly regulated at the State and federal levels. Shareholders must manage an organization consistent with the formalities established by law, alternatively risk losing the protection of the company form. Sole proprietors, on the opposite hand, can run their businesses without having to suit any management formalities because as the owner, you'll run the business in any way that suits your purposes.

Tax Obligations

The Internal Revenue Service classifies an organization as a taxpayer. Regular corporations must file tax returns and pay taxes on business income at the corporate tax rate. Sole proprietorships aren't required to file a separate income tax return for the business. The owner records business income and expenses on his income-tax return, making it easier to satisfy IRS business-tax requirements.

Ownership Restrictions

A sole proprietorship is simply a friend of the owner. All business assets and liabilities are within the owner's name, so it is often hard to separate business affairs from personal affairs if the owner wants to sell the business. The business will cease to exist immediately the owner dies. An organization is structured to make it easy to transfer ownership to a third party by selling shares of stock. The corporation also has an independent existence, so it continues to work if the shareholders change or die.