A corporation can be established that is a separate and distinct entity that is apart from your personal situation.
The corporate entity can build its own credit regardless of an individual’s own personal credit history.
It is advisable for a new business owner to establish a line of credit in the name of the corporate entity, and also to get a corporate credit card. This is a lot better for accounting purposes and will go a long way towards furthering the ability to finance inventory, corporate business needs such as supplies, expansion and corporate events.
When a business corporation is formed, a separate Employee Identification number, or EIN is established with the IRS and this becomes the corporate tax ID number. This will enable the corporation to open a bank account, and this will be the beginning of the establishment of a corporate credit identity.
It is also a good idea for the corporation to get a number with Dunn and Bradstreet, which will further establish the corporation as being a reliable and trustworthy entity. Even if you have bad personal credit, a steady and step-by-step establishment of a corporate identity is like starting over as far as the credit of the corporation is concerned. If an individual is careful, and plays by the rules, he or she can re-establish credit through the corporation, even if the only stockholder is you.
Setting up the desigation of the corporation
Corporations can be set up as a “C” corporation, which means that it will be taxed separately as it’s own entity, it will have its own assets and liabilities, and will be just like a separate person.
Many corporations are set up as limited liability companies, or LLC’s. The corporate structure is the same as a ‘C” corporation, in that it is a separate entity and will still shield the owner from liability to a large degree, but the taxes can be shown as corporate, or as a partnership, or as a sole proprietor. This offers a great deal of flexibility in how the company is run and how the taxes come out at the end of the year.
With an LLC corporate setup, a person can run his or her business just like that of a sole proprietor, but his exposure to liabilities will be shielded by the LLC and he will be able to use the corporate entity to start a new credit profile that is other than his own personal credit profile.
Also it should be noted that in order to be classified as a true business for lending purposes, a business should have a brick and mortar physical location, with a business phone number. If you are renting an executive suite that will suffice. Many corporate lenders don’t like to lend if you are running your business from home.
Each new business owner should consult with their account or attorney as to the feasibility of setting up a corporate identity and weigh the benefits of doing so. It will most likely pay off in the long run.