A corporation is treated by law as a physical entity. Its life is separate from those of its owners or stockholders. The questions of whether or not to incorporate are not easily answered; however, a growing business should investigate the benefits and complexities of incorporation.

One of the main advantages of incorporating is limited financial liability for the business owner. The firm is responsible for its own taxes and debts. If the firm is sued for any reason, if debts are unpaid or the firm becomes bankrupt—the liability of the owner is limited to the value of the personally held stock. Personal assets are not at risk. The caveat is that in recent years the "corporate veil" has been pierce. Negligence may bring liability to the owner personally. In addition, being name in a civil case along with the company, may result in personal liability. The corporation offers some protection, but the owner may still want additional personal insurance to protect himself or herself against civil penalties.

For the small business owner, the corporation provides a vehicle for easily transferring ownership in the company. Stock shares may be distributed to family members or sold to investors. A small corporation that is successful creates its own financial stability. And the future of the business is tied to stock holders rather than a single owner. For the owner, this provides for the continuation of the business in the event of an untimely death. A corporation may also make it easier for the business to raise capital, borrow money and obtain credit.

The chief financial drawback of incorporating is double taxation. The company pays taxes on profits and then the stockholders—who in the case of the typical small corporation are likely to be the owner-operators—pay income taxes on the dividends they receive. The "C Corporation" was just described. The "Sub-Chapter S Corporation" also affords limited personal liability protection, as the firm is not taxed as a corporation unless its capital gains exceed $25,000. Stockholders report their share of business profits or losses on their individual tax returns. This form of incorporation is common with small companies.

Corporations are also subject to many state and federal controls. If you want to expand your business to other states, you may have to pay additional fees. There can also be complications in filing annual tax forms, which require more extensive bookkeeping during the year. Finally, the corporate charter or articles of incorporation must state the business activities of the firm and would require amendment should you decide you want to expand the activities of the business.

Sign up for counseling and a SCORE Counselor will discuss the various forms of business structure with you. Before deciding to incorporate or not , meet with your tax attorney. Obtain expert advice as it applies to your business and personal financial situation and goals. There are pros and cons to incorporating, it is a matter of deciding what is best for your business situation.