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Six Powerful Reasons to Form a Company or Organize an LLP

Overall Discussion

There are many advantages to forming a company or organizing an LLP. When you form a company or organize an LLP, you are protecting yourself from personal liability. You will also be able to immediately take advantage of the tax system. Forming a company or organizing and LLP enables you to make use of a marketing framework and this in turn makes it a lot easier to raise capital & establish corporate credit. A Company or LLP may also take advantage of government laws that grant it more privacy. Finally, a corporate or LLP structure can result in an easier transfer of ownership when it comes to various assets. We will now discuss these individual advantages on a more detailed basis.

Let us begin with the most important reason to form a company or organize an LLP - that is to protect yourself from personal liability. When you form a company or organize an LLP, you are forming a legal entity that is separate from yourself as an individual. The Company or LLP has powers vested upon it that allows it to make all the decisions that an individual may make. For example, the Company or LLP may enter into leases, the Company or LLP may borrow money, it may buy goods and services on credit, and in all cases you are not personally liable for the transaction. If a problem arises, the only recourse would be against the Company or LLP, similarly, if anyone were to ever file a lawsuit for an action arising out of the business of the Company or LLP, that party would not be able to go after your personal assets such as your home, or car or boat etc., as long as you comply with the formalities of a Company or LLP. Therefore you have the peace of mind knowing that your personal assets are safe.

The second area we mentioned dealt with tax advantages. In a corporate or LLP structure you can take what otherwise would be non-deductible personal expenses and turn them into legitimate deductible business expenses. In this area there is really no limit as to what you can accomplish with a little creativity. For example, it is well within reasonable grounds to have your annual corporate meeting of shareholders, directors or members in a far away "resort city" and deduct the expenses as a corporate expense.

Weekly meetings between a husband and wife as officers or directors of the Company or operating managers or members of an LLP, for example, at a restaurant, are deductible as a Corporate or LLP expense as long as the principle purpose of the meeting relates to the affairs of the Company or LLP. If the Company or LLP requires the use of your automobile, you can set up a vehicle lease and deduct that as a Corporate or LLP business expense. The same principle applies if you use part of your residence for business purposes. The Company or LLP is allowed to pay rent on the portion used and subsequently deduct it as a business expense.

Forming a company or forming an LLP enables you to make use of a marketing framework. You have the ability to hold the business out to the public as a Company or LLP. Companies are usually viewed as bigger and more powerful operations than say "John Doe down the street". This is particularly useful when you are trying to attract investors and raise capital so that your company grows. The fact that your business is recognized as a Company or LLP gives it immediate credibility in the eyes of potential venture capitalists and other providers of funds. This also holds true for establishing or reestablishing credit. If you have had prior credit problems on a personal level, it will not prevent you from establishing good corporate credit once you have completed the company formation or organizing process.

The issue of privacy is also a great advantage to forming a company or organizing an LLP. In most cases the shareholders of a Company or members of an LLP are not disclosed and therefore are not public record. It is possible to set up your Company or LLP in such a way that your involvement in the company is never revealed.

The final benefit of forming a Company, that we will discuss, deals with the ease of transfer of ownership when it comes to assets owned by the Company or LLP. For example, if you own real estate, by putting it into the Company or LLP not only do you protect that asset from your personal creditors but if you needed to transfer that property to someone else, you could do so simply through a private agreement such as a stock transfer agreement, rather than go through a formal real estate completion. The stock transfer agreement would transfer ownership interest in the Company or LLP from you, to the person you are transferring to, and since the real estate is already a company asset, you are effectively transferring your interest in that as well.

List of Six Powerful Reasons

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