What is Incorporation and what are the benefits? Incorporation is the establishment of a legal entity otherwise known as a Corporation. Corporations may enter into contracts, open financial accounts and is generally afforded rights and privileges similar to a person. Asset Protection and tax exposure reduction are the two primary reasons that people choose to incorporate, or organize as Limited Liability Companies (LLC) and Limited Partnerships (Ltd. Partnership).
ASSET PROTECTION
One advantage of Incorporation is that it provides beneficial owners, known as the shareholders in a corporation or members in a LLC or Ltd. Partnership, the means to reduce their risk exposure. Shareholders are not personally liable for activities of the entity. This is referred to as the provision of Limited Liability.
As you are aware, in this litigation oriented society no one is immune from the threat of attachment of assets; whether it be through frivolous lawsuits or misguided judgments. Through incorporation, one may preserve their anonymity, as shareholder identities are protected in various jurisdictions. Incorporation provides the first level of asset protection that allows individuals to form business ventures, expand existing operations and secure accumulated wealth.
TAX EXPOSURE
The second main consideration is the effect on tax exposure. Corporate entities can typically lower their taxable income through the deduction of expense items involved with the operation of the entity. A professional tax accountant can provide guidance as to what is generally acceptable according to IRS guidelines. Significant tax savings may further be realized by incorporating in tax-free jurisdictions. For example, Nevada imposes no state income taxes and The Bahamas does not impose any taxes or filing requirements for International Business Corporations (IBCs).
PRIVACY & DIRECTORS AND FOREIGN ACCOUNTS
Most jurisdictions require disclosure of the names and addresses of the president, secretary, treasurer and/or director(s) of the corporation. While being an officer or director does not explicitly imply ownership, you as the shareholder may not want to be publicly listed in connection with the corporation. Directors for offshore corporations is imperative to the preservation of one's anonymity. The United States Department of Treasury requires form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts) to be filed by all US persons, citizens or residents, natural persons or legal entities, who have signatory authority over a foreign bank or financial account. Through the utilization of a director, your IBC may establish bank and financial accounts while alleviating you from the reporting requirements of form TD F 90-22.1. The US Department of Treasury also requires the filing of said form by all US persons who are the owner of record on a foreign bank or financial account. The issuance of bearer shares of the IBC precludes the notion of an owner of record. Please consult with your tax advisor or contact NFH for further information regarding reporting compliance through the use of a Director. At the NFH, we provide director services for an annual fee for these purposes.
>> DIRECTOR CONTRACT <<
