cor·po·ra·tion –noun
1. an association of individuals, created by law or under authority of law, having a continuous existence independent of the existences of its members, and powers and liabilities distinct from those of its members.
Dictionary.com Unabridged (v 1.1). Retrieved September 07, 2008, from Dictionary.com website: http://dictionary.reference.com/browse/corporation
The beauty of a corporation is that it is legally its own entity. It can own and insure equipment, buildings and inventory. It can hire employees. It pays its own taxes. It conducts business for its own sake. It is responsible for the consequences
of conducting its own business. Set up correctly, it shields its members from being sued for its legal activities. In simple English, any risky home business should be incorporated to reduce the risk of losing the home or other personal assets. All US states have provisions for incorporation. Contact your state office for an application. The application fees are affordable. Even a home business could be a risky business. Here are three insurance-related reasons to incorporate a home business.
Insurance Reason 1: Risk is unpredictable.
In theory, your risk depends on the laws of the state you live in, and the nature of your home business. Obviously, if you use sharp objects on or near a customer, you have risk. Some risks are more subtle. Financial advising or real estate advising exposes you to large risks. Midwifery or any other home health care is frought with risk. Unfortunately, unforseen circumstances could expose you or your home to huge economic risk. You are liable for the actions of your partners and your employees. If one of them injures a customer or damages a customer's property, you are just as liable as they are. If they rent a tiny apartment and drive a twenty-year-old car, then a judge will pass over them and look to you to pay the damages. Correctly done, incorporation limits your personal liability to the amount of your investment in the corporation.
Insurance Reason 2: Separation of Assets
Correctly making a corporation the owner of your home business computers, vehicles, accounts, and equipment helps you draw a clear line between your home business and your home. Never cross this line. The corporation may need to prove its autonomy in court. Never drive corporate vehicles for personal use. Keep everything separate, especially the money. All corporate money goes directly to its own bank account. Corporate expenses are paid with corporate checks, online debits from the corporate account, or with a corporate credit card. The corporation can pay you a regular salary out of the corporate account.
Insurance Reason 3: Tax-Favored Employee Insurance Benefits
If you correctly form your home business into a C corporation, there can be tremendous tax advantages. A C corporation can set up insurance benefits for you as a stockholder-employee. A C corporation pays premiums on these benefits
before taxes. These benefits could include health insurance, dental insurance, disability income insurance such as Aflac, and the first $50,000 of group term life insurance. Non-insurance benefits are also possible, such as a flexible spending account for day care and deductibles.
Disclaimer: To set a corporation up correctly, consult with an attorney.