I have no idea why they incorporated. Pointless at this juncture. A lot of people are more in love with the idea of starting a business than actually doing the work associated with the business.
Actually, if you're at all serious about doing any kind of business....I think one of the smartest
things you can do, it incorporate.
I formed my corporation (is cheap to do on your own, not that much more if you want to get a lawyer to do it for you).....and opted for the subchapter "S" corporation. I do contracting work through this..single owner, single employee.
This has MANY advantages. First off, they (if they do the S corp) can start writing off all kinds of stuff, especially the equipment. Even if they don't bring in a cent the first year...they can show good losses/expenses and will reap the benefits on their taxes. Write off mileage (keep a log book in the car). Also with this type of corp...you only get taxes once on the funds that come through...they all fall through to personal taxes at EOY....
Another VERY nice benefit to this set up is, you can save a great deal on self employment taxes (FICA, Medicare/Medicade). You only have to pay yourself a 'reasonable' salary...read up on it and having a CPA isn't a bad idea either (you can write them off too)...but for hypothetical example.
Say you bill and bring in $100K. Without taking into any account deductions.....
Let's say you pay yourself a 'reasonable' salary of about $60K. You pay state, local, federal, SE taxes on that $60K.
At EOY, the remaining $40K falls through to you...and you pay state/fed/local taxes on that too...however, you don't have to pay employment taxes on that (SS, Medicare...etc).
If you don't incorporate, or just go normal LLC and the like...you would have to play employment taxes on the whole $100K.
See the savings there?
But also, incorporating...if nothing else, gives you limited liability...if you get sued, the company loses, but you can't get sued out of your house and savings...it is just good legal shelter to have in today's litigious society.
And again...it is also about the last way a person can keep more of their hard earned $$ from the tax man.