What Business Owners Must Know About Corporations

Business incorporation owners are smart people for choosing to incorporate their business. The term “corporation” is derived from the Latin word “corpus” which means body. A corporation is a business body and a separate entity, distinguishing the business owner’s personal assets from the business.

In other words, a corporation removes personal liability for corporate debts and obligations from the business owners because the law recognizes that the corporation exists separately from the person who created it. Therefore, the business owner’s personal assets are secured and this is one of the most striking features about business incorporations that appeal to business owners in particular, wanting to incorporate their company.

Switching your business into a corporation can be a good idea. However, if you are on the fence about making a decision as big as that, you must be aware of all the hows and whys of the process. Business owners and entrepreneurs build a business from scratch with a lot of conviction and hard work but what’s important is not to jeopardize any of that. Here’s what you should know about business incorporations in order to make a smart decision.

Incentives for Incorporation

Even though corporations have added taxes and require additional paperwork in terms of record keeping requirements and administrative details compared to normal businesses, the separate existence of a corporation means that the shareholders would not be held legally liable for any of the actions of the corporation. This separation has plenty of beneficial implications such as:

·         Elongated life: Entrepreneurships and proprietorships may close down after the owner dies, but the life of the corporation is not correlated with the life of the business owner and even after his/her death, the corporation can continue to run independently.

·         Ownership interests can be transferred: Unlike sole proprietorships where transferring the business ownership to someone else can be full of administrative and legal hurdles, the process of giving away the ownership interests of business incorporation is relatively easy. The ownership interests can be sold and transferred feasibly because the ownership in a corporation is represented by the shares of stock that the owner holds.

·         Limited liability attracts investors: Due to the safety of limited liability and transferability of shares, raising investment capital for your business incorporation is not a challenge.  Stock shares can simply be transferred to investor which attracts investors.

How to go about making a corporation

If you’ve taken the decision to incorporate your business, you must also decide where to incorporate it. You can incorporate your business with the state, your country or a foreign country. Incorporation with the state is what small businesses usually go for, but if tax breaks aren’t a significant concern, than your company can explore the other options as well.

You will also need to establish a pre-incorporation agreement that will have your chosen board of directors with their respective positions. Then comes the part where you decide an official name for your company and have it registered for your corporation. However, thorough research must be done before hand, to prevent more than one company from having the same name because that’s illegal and considered as copyright infringement.