Home' Trinidad and Tobago Guardian : October 7th 2014 Contents 3. Raising Money Is Easier
Corporations also have more ability to raise money,
which may make it easier for your business to grow and
develop. While corporations can borrow and incur debt
like any sole proprietorship, they can also sell shares and
raise equity capital, a big advantage because equity capital
generally does not have to be repaid and incurs no interest.
(Of course, by issuing shares, you are reducing your per-
centage of ownership in the company.)
4. Income Control
If you incorporate your small business, you can determine
when you personally receive income, a real tax advantage.
Instead of getting your income when it's received, being
incorporated allows you to take your income at a time
when you'll pay less in tax.
5. Potential Tax Deferral
Becoming incorporated gives you tax deferral potential.
Because you can defer paying some tax until a later time,
you may be able to realize tax savings if you are then in
a lower tax bracket, or if the tax rates have fallen.
6. Income Splitting
Another tax advantage of incorporating is income split-
ting. Corporations pay dividends to their shareholders
from the company's earnings. A shareholder does not have
to be actively involved in the corporation's business activities
to receive dividends. Your spouse and/or your children
could be shareholders in your corporation, giving you the
opportunity to redistribute income from family members
in higher tax brackets to family members with lower
incomes that are taxed at a lower rate.
7. Increased Business?
Having Ltd., Inc., Ltee., or Corp. as part of your com-
pany's name may increase your business, as people perceive
corporations as being more stable than unincorporated
businesses. If you're a contractor, you may also find that
some companies will only do business with incorporated
companies, because of liability issues.
Incorporating your small business sounds like a great
idea, doesn't it? But there are also disadvantages to incor-
porating that you need to consider. These are outlined on
the next page.
While there are several advantages to incorporating a
small business, there are also disadvantages that need to
be considered. The main disadvantages of incorporation,
I think, are the increases in paperwork and cost, which
can be substantial compared to a sole proprietorship or
Tuesday, October 7, 2014 www.guardian.co.tt Guardian
Continued from Pg 16
1. Another Tax Return
When you incorporate your small business, you'll have to
file two tax returns each year, one for your personal income,
and one for the corporation. This, of course, will mean increased
accounting fees. Unlike a sole proprietorship or partnership,
corporate losses can't be deducted from the personal income
of the owner.
2. Increased Paperwork
There is a lot more paperwork involved in maintaining a
corporation than a sole proprietorship or partnership. Corpo-
rations, for example, must maintain a minute book, containing
the corporate bylaws and minutes from corporate meetings.
Other corporate documents, that must be kept up to date at
all times, include the register of directors, the share register,
and the transfer register. (See Getting Your New Corporation
Up and Running for more information on the corporate minute
book and other documents necessary for corporations.)
3. No Personal Tax Credits
Another disadvantage of incorporating is that being incor-
porated may actually be a tax disadvantage for your business.
Corporations are not eligible for personal tax credits. Every
dollar a corporation earned is taxed. As a sole proprietor, you
may be able to claim tax credits a corporation could not.
4. Less Tax Flexibility
A corporation doesn't have the same flexibility in handling
business losses as a sole proprietorship or a partnership. As
a sole proprietor, if your business experiences operating losses,
you could use these to reduce other types of personal income
in the year the losses occur. See "8 Tax strategies to Maximize
Your Business Tax Deductions"
. In a corporation, however,
these losses can only be carried forward or back to reduce the
corporation's income from other years.
5. Liability May Not Be As Limited As You Think
The prime advantage of incorporating, limited liability, may
be undercut by personal guarantees and/or credit agreements.
The corporation's much vaunted limited liability is irrelevant
if no one will give the corporation credit. When a corporation
has what lending institutions consider to be insufficient assets
to secure a loan, they often insist on personal guarantees from
the business owner(s). So although technically the corporation
has limited liability, the owner still ends up being personally
liable if the corporation can't meet its repayment obligations.
6. Registering A Corporation is Expensive
A further disadvantage of incorporating is that corporations
are more expensive to set up. A corporation is a more complex
legal structure than a sole proprietorship or partnership, so
it's logical that creating one would be more complicated and
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