Jay E. Wright, CPA, CFEStrayer University
To my understanding you’re in the need of a professional opinion on the most advantageous capital structure of new corporation. First and foremost I want to congratulate you on the great job that you have done so far; securing several significant contracts with sufficient capital, that takes hard work and much dedication. It is my duty now to give you as much information as possible to help you succeed.
As we both know when it comes down to comparing two separate things such as the Tax advantages and disadvantages of debt versus equity capital in a corporation’s capital structure; its has its ups and downs. Starting with the advantages: (1) You do not have to give up your control, (2) There’s simple obligations, (3) You have tax advantages, (4) A corporation can deduct its interest paid on a debt obligation, (5) Shareholders do not recognize income in a debt retirement as they would in a stock redemption.
When it comes down to taking out a loan, the owner (Yourself) do not have to give up any control of your business.The lender, whether its a bank or other alternative lending organization(s), “…does not acquire the right to manage or oversee how you run your small business, nor worry about how profits are allocated, etc.” ( Johnson Gavin. Debt vs. Equity Financing (post 2): Advantages and Disadvantages of Debt Financing June, 2012).
Your obligations to the lender is to pay back the money that you had borrowed, according to the term in which you agreed to. Once you’ve paid back the loan, your business relationship with the lender ends. There are no on-going obligations (beyond repayment) to burden your business.
Tax advantages. “…The interest that you pay on the loan is tax deductible for your business” (Johnson Gavin.Debt vs. Equity Financing (post 2): Advantages and Disadvantages of Debt…