July 24th, 2008, 2:24 amAny one who has seen the abbreviations “inc” or “llc” will realize that most businesses are incorporated. However, what most people are in the dark about is the reasons why so many businesses seek incorporation or why incorporation is so valuable. There are numerous reasons as to why a company will incorporate, all of which are designed to help protect the owner from an onslaught of liability that can result from operating as such. No matter what type of company a person may own, there will be no escaping the dangers of liability.
When a business is incorporated, it becomes owned by entities of people known as shareholders. Each individual shareholder owns a certain amount of the equity of the company. Some may own equal shares, some may own majority shares, other may own minority shares, but when combined they comprise the totality of ownership of the business. When it comes to certain business decisions, the majority of the shareholder’s agreement need to be procured before moving forward.
Also, when a company is incorporated, the shareholders are protected from the dangers of personal liability if any legal action is taken against the company. No business is worth risking one’s personal wealth, savings and property so to become involved in any business that is not incorporated, even on a very minor level, is to take a great risk. Yet, many individual business owners still insist on keeping their business a sole proprietorship.
When seeking incorporation, it is essentially perpetually prolonging its existence. That is, it will survive long after its owners. A firm that has been incorporated will become a legal entity that can continue onwards as its ownership will be determined by shares; and these shares can be transferred to another person who can operate the company.
While some people may ask “Why should I care what happens to the business after I die?” Well, if the owner is concerned only about the business health while he is alive, then he should definitely seek incorporation as it would be incredibly difficult to raise private equity capital or find any partners if these parties realized that the company could dissolve at the whim of a sole proprietor.
In order to expand and be successful, it can not exist within a vacuum. The easiest way to remain in a vacuum would be to operate as a sole proprietorship. Taking a business and placing it under the banner of incorporation will properly handle the elimination of limitations of growth.
Ultimately, it is up to the individual to decide whether business incorporation is right for the company. However, all individuals must understand that to ignore the benefits of incorporating a company is to take a huge risk.
Craig Thornburrow is an acknowledged expert in his field. You can get more free advice on offshore incorporation and business incorporation at www.incorporationchoice.com
Filed under Business Franchise, Improve Sales Income
Joseph Young said,
July 26th, 2008, 2:48 am
Attending to corporate formalities is a large part of maintaining the corporate veil or shield of limited liability. Tax benefits of incorporating are also dependent upon the separateness of the corporate entity.
Too many folks neglect their corporate formalities, i.e. holding corporate meetings, adopting resolutions, and recording formal minutes of the proceedings. This is no defense in the event of a law suit, judgment, lien, seizure, or, god forbid, a revenuer’s audit
Filing the corporate articles of incorporation is only the beginning of corporate protection. Organizational meetings must be held, together with annual meetings of the corporate shareholders and directors. This is a process that can be streamlined, systematized and automated if you understand the secrets of good corporate governance.