The location of your business will have the biggest impact on your costs; each state has their own specific set of rules and fees about incorporation. Liability is not ironclad — While the purpose of a corporation is to limit your liability, your corporation can be challenged in some instances. If your corporation cannot secure a loan because you do not have enough assets, a bank may require you to use some of your personal assets as a guarantee.
The Differences between Incorporated and Unincorporated Businesses. Liability — When you have an incorporated business, you, the business owner, are protected from any liability your business incurs.
If your incorporated business fails to pay a debt and defaults, the creditor or vendor cannot come after your personal assets. If you are not incorporated and your business ends up defaulting or owing someone money, you are held personally liable for your debts. If someone files a lawsuit against your business and the entity is found to be at fault, your personal assets will not be available to pay any sanctions, fines, or payments required by the court.
Just like with debts, if you are not incorporated, your own personal assets could be in jeopardy if you are taken to court and lose. Taxation — For most businesses, an incorporated organization will pay fewer taxes than one personally owned by an individual. Since an incorporated business can also defer some taxes and pay at a later date, you may have an easier time with cash flow. As a small business, if you are incorporated, you may also qualify for some additional deductions.
When you are incorporated, you will need to file a separate business tax return along with your own personal tax return. An unincorporated business owner can file one single tax return. In addition to filing just one return, an unincorporated owner can claim some personal tax credits when it is time to file.
As a business owner with an unincorporated business, you can also use any business losses you end up experiencing to decrease your personal tax liability and income. Initial and ongoing costs — While you will have some initial costs to set up your corporation, the exact amount you will need to spend will depend on the state you live in.
Different states charge different levels of fees for filing articles of incorporation. Once you file, you will have some regular and ongoing fees each year; the amounts will vary based on where you live and the regulations you need to follow. If you need legal help setting up your corporation, you may also incur additional fees and expenses.
As mentioned, a result of incorporation is that the business entity and the individual are legally distinct. It follows that if a creditor holds a liability against the business, then the creditor cannot pursue the owner individually because the owner is distinct from the business. This benefit is perhaps the most essential aspect of incorporating because it shields the owner's assets from the entity's liability. If you do not incorporate, there is no liability protection shielding your personal assets.
You and your business are not distinct entities, so the business's liabilities are your liabilities—and vice versa. Not incorporating can have tax benefits. Unincorporated entities only pay taxes once against profits the business earns. By contrast, a C corporation is subject to double taxation: entities organized as C corporations pay taxes on what the business earns, and then employees who receive payment pay taxes again against what the business pays them.
In other words, profits of a C corporation are taxed on both corporate and personal levels. Note that S corporations and LLCs avoid this double taxation issue by having pass-through taxation. This means that the profits earned by the business are not taxed at the corporate level and instead pass through to the employees or members, who then pay taxes at a personal level. Those seeking to incorporate and avoid double taxation often opt for an S corporation or an LLC.
All businesses need capital. You will also notice that on overcast or very rainy days that you might experience some service interruptions. If you are used to receiving high-speed services and the benefits that come with streaming, a swap in lifestyle is necessary when you move to a community like this.
Some states do not have any unincorporated areas despite the fact that there can be some very rural locations in them. The cost of administering services to some regions is just too high, which is why communities place the cost on those who choose to live in these towns instead of making it a community responsibility. You will want to figure out the reason why the area where you want to purchase a home remains unincorporated to ensure that you are comfortable with those expectation.
If services are few and far between, then it can suppress the value of your home if you are not careful. Your tax assessments might be higher than your property value. Because the value of your home can be suppressed when living in an unincorporated town, the tax assessment that you do receive might not reflect the actual amount that you would receive during a sale. This issue can be an ongoing challenge for some property owners if they make land improvements because it could cost them more each year in taxes — especially if there is a school levy in place as well.
It helps to look at the history of the property before purchase to have an idea of what to expect with this potential disadvantage.
Living in an unincorporated town can give you some extra privacy, more real estate flexibility, and an opportunity to live life in a way that is important to you. These benefits come at the expense of a slower response time if you need emergency help and a lack of control over what your neighbors might decide to do. If you are in a small town, then the likelihood that someone might decide to start a pig farm next to you is not high — but it could still be possible.
That is why you should check the deed very carefully before finalizing a transaction. The pros and cons of unincorporated towns allow you to balance freedom of living while still being part of a community. When you add in the lower costs that are typically found in this arrangement, it is easy to see why this option is quite popular in the United States and Canada. List of the Pros of an Unincorporated Town 1. List of the Cons of an Unincorporated Town 1.
Conclusion of the Pros and Cons of Unincorporated Towns Living in an unincorporated town can give you some extra privacy, more real estate flexibility, and an opportunity to live life in a way that is important to you. Share Pin Tweet. She received her B.
In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.
The following are examples of unincorporated communities:. In the Northeast, almost every community and territory will belong to some municipality at one level or another.
In some parts of the country, communities might not have a legal incorporation within a county or town. Unincorporated towns are fully-fledged towns or even small cities that do not have their own local government. They tend to answer to the county, even though they do not have their own elected officials. Unlike towns, these areas are generally not governed by neighboring towns under the same legal umbrella.
This can range from having little say on how your town is run, to having a hard time reaching the post office.
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