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The primary reason people form corporations is to take advantage of the benefits and protection that a formal entity offers.
There is no requirement to incorporate to operate a business; however the consequences could be costly.
Different business entities provide owners with various protection levels and benefits to suit their needs. |
The primary advantage is to protect you - the business owner - from liabilities incurred by your business.
In general, shareholders, the owners of a company, do not face personal liability for the debts and obligations of the business.
If you purchase 100 shares of company XYZ stock on the New York Stock exchange, you have become a part owner of Company XYZ. If XYZ fails to pay back a debt, as a shareholder you are not normally responsible for re-payment.
But you need to be careful. Total liability insulation is not always possible and there are many formalities - some which can be expensive - that need to be followed in order to maximize your liability insulation, including your choice of entity and how you manage the affairs of the business.
If you are taking significant risks in your business and you have sufficient personal assets to protect and you are willing to undergo the expense and hassle of maintaining a proper business entity structure, insulation from liability could be the only reason you need to incorporate.
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