Why should I incorporate?

With the rise of the Limited Liability Company (LLC) over the last several decades, there really is little to no reason not to incorporate your business. An examination of just a few features shows the benefits to incorporation for a small to medium sized business.

PERSONAL ASSET PROTECTION.

Both corporations and LLCs allow owners to separate and protect their personal assets. In a properly structured and managed corporation or LLC, owners should have limited liability for business debts and obligations. Corporations generally have more corporate formalities than an LLC that must be observed to obtain personal asset protection. Idaho has established by statute that failure to observe corporate formalities in relation to an LLC is not a basis, by itself, for removing corporate protection for the assets of the owners.

PERPETUAL EXISTENCE.

Corporations and LLCs can continue to exist even if ownership or management changes. Sole proprietorships and partnerships just end if an owner dies or leaves the business. This feature is particularly important in considering business succession plans and estate planning.

TAX FLEXIBILITY.

An LLC is taxed at the same rate as a sole proprietorship while providing limited exposure to personal liability. Though profit and loss typically pass through an LLC and get reported on the personal income tax returns of owners, an LLC can also elect to be taxed as a corporation. When an entrepreneur sets up a corporation, he or she is taxed on both the individual and corporate levels. However, a corporation can avoid double taxation of corporate profits and dividends by electing Subchapter S tax status.

DEDUCTIBLE EXPENSES.

Both corporations and LLCs may deduct normal business expenses, including salaries, before they allocate income to owners. This allows for a more favorable tax basis than one would enjoy simply as a sole proprietor.