Skip to main content
Skip to footer
Staples.com® | Expert: Steven Strauss

Ask a Business Expert

Business Law Expert Expert: Steven Strauss

Why incorporate?

Q: How could incorporating protect me or my business? What type of incorporation should I choose?

A: The best thing about forming your business as a corporation is that it limits your personal liability, which is not true for partnerships and sole proprietorships. For example, say that you owned a tire shop, that one of your employees negligently installed a tire, and that the tire fell off the car and caused a three–car accident, including several personal injuries. If your tire store was not a corporation, the injured parties could come after you personally for money damages. This means that you could lose your business, your house — everything.

That would not be true if you incorporated. Creditors are limited to the assets of the corporation only for payment and may not collect directly from the shareholders. There are three types of corporations — C corporations, S corporations, and the Limited Liability Corporation (LLC).

One issue to be aware of is taxes. C corporations are taxed twice. First, the corporation is taxed on net income, and second, shareholders are taxed on the income that they receive from the corporation. (Who said the IRS is getting friendlier?) S corporations avoid this by passing the tax liability onto shareholders. As such, S corporations are only taxed once. The same is true for an LLC.

So which is best for you? If you plan on creating a large company (one that is publicly traded) you choose a C Corp because shares of stock are most easily transferred. While you might want an S corporation for tax reasons, they are limited to no more than 75 shareholders, all of whom must be individuals. LLC's trump S Corps since they have no limit on the number of shareholders, and those shareholders can be corporations and partnerships. Generally speaking, LLC's are best for smaller start–ups and C corps are best for larger ones.

See all questions


Some issues discussed in the expert forum are complex and continually changing.We recommend you consult a professional advisor about your specific circumstances, needs, and applicable laws. More details.