A corporation is a legal entity that is distinct from its owners. As a legally recognized entity, a corporation is afforded certain rights, privileges, and obligations that individual people are not. Corporations exist to create a separation of legal responsibility between the individual and the organization.
A corporation is an independent legal entity, owned by shareholders. It has all the legal rights of an individual, such as the right to sue and be sued, sign contracts, and pay taxes. It can own assets, enter into contracts, and sue and be sued.
Advantages of Incorporation
The main advantage of incorporating a business is to create a legal separation of personal assets and business assets. This structure provides liability protection if the business is sued or has debts. The incorporation of a business also enables separate taxation from the shareholders of the company and allows for a separate financial history.
Other advantages of incorporating a business include greater flexibility and control over the business structure, the ability to raise capital through the sale of stocks and bonds, and better credibility with customers, suppliers, and other business partners.
Forming a Corporation
Incorporating a business requires the creation of corporate documents, such as articles of incorporation, bylaws, and minutes of meetings. These documents, which are filed with the local or state government, govern the internal operation of a corporation.
In addition to forming a corporation, businesses must take other steps, such as selecting a corporate name, obtaining licenses, registering with the IRS for an Employer Identification Number, and obtaining a business bank account.
The Bottom Line
Incorporating a business can be a complex process, but its legal protection and other advantages can offer significant benefits for both businesses and shareholders. By understanding the key benefits and steps of incorporation, businesses can benefit from forming a corporation.