Your Corporate Entity Type Matters
People commonly ask me which corporate entity type can build business credit. The answer is simple. ALL corporate entities can build business credit.
So, you can build business credit with almost any corporate entity type.
But if you truly want to separate business credit from personal credit there’s just one thing. Your business must be a separate legal entity. It cannot be a sole proprietor or a partnership. Incorporating matters.
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When you own a corporation or LLC, you are not the same as the corporation. Rather, you and the corporation are separate. Once you are separate from your corporation, then you can truly separate your legal liability. It creates a layer of protection between you and your corporation’s debts and actions. And this is the case even if you’re the corporation’s sole owner. Or its sole employee.
Protect Yourself If the Business is Ever Sued
This will matter in the future. One place where it will matter if your business is ever on the business end of a lawsuit. Unless you have actively told an employee to commit a felony, you will be off the hook. But be sure to consult with a competent legal professional. Just to be sure.
Let the Corporation Pay Its Own Taxes
It also matters when it comes to taxes. The Internal Revenue Service will collect taxes from the corporation. And not you, beyond the standard taxes you need to pay on your salary.
And if the corporation is not able to pay its taxes for any reason, do not worry. Because your personal assets are not to be touched by the Internal Revenue Service. Yet, as always, it’s a good business practice to check with a competent tax professional. You always want to be absolutely certain about such things.
Protect Yourself
Protecting your personal assets should be a top priority in your life. You can make that a lot easier with converting your business to a corporation. That is, if it is not one already.
Find out more about how a corporation can help you build business credit.
The Bottom Line for Your Corporate Entity Type
So, it is true that you can try with any corporate entity to build business credit. The trick is for it to be a corporation, for only LLCs and corporations can get business credit properly. That is, with no personal guarantee and no personal liability. And this is all because with those entitles the business owner is truly separate from the business. Partnerships and sole proprietorships just plain can’t deliver that.
