Advantages
- Limited personal liability for corporate indebtedness.
- Potential tax benefits. Depending on current tax rates and shareholders' individual tax brackets, incorporating a small business can produce federal income tax advantages.
- Shareholders may provide tax-deductible employee benefits, including life, disability and medical insurance, and qualified retirement plans. As employees of the corporation, the shareholders may pay for benefits themselves and their families with tax-deductible corporate dollars.
- A corporation can continue to exist at the death of one or more of the shareholders.
Disadvantages
- Higher start-up costs and increased formalities.
- Complex federally mandated reporting and administrative requirements.
- Tax rates and regulations may favor or disfavor incorporation at any given time.
- Potential "double taxation" of corporate earnings.
- Without proper planning, the death, disability or retirement of a major shareholder can affect the well-being of the remaining principals, the other employees, and the individual's family.
In a professional corporation or association, only qualified members of the same profession or specialty may purchase a shareholder's interest in the practice. The surviving spouse or other family members may be ineligible.
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