A corporation is a separate and distinct legal entity created under the laws of a state. The individuals who are part of the legal entity are the shareholders, the board of directors and the officers. A corporation can legally enter into contracts, file lawsuits, be sued in a lawsuit, pay taxes, and conduct business. You should consult a legal profession before deciding whether or not to incorporate your business. The following are some of the advantages of operating your business as a corporation:
Limited liability. This is one of the most important reasons to form a corporation. Because a corporation is considered a separate legal entity, the personal assets of the shareholders are not at risk to meet corporate obligations.
Treatment of Corporation Tax. A corporation pays taxes separately from its shareholders at the corporate rate. Shareholders pay personal income taxes on payments they receive from the corporation in salaries, bonuses, and dividends.
Stock market incentives. Corporations may offer stock or stock options to their employees as an employee benefit that can make employees more loyal to the company.
Employee benefits. A shareholder who is also an employee of the corporation may be eligible for a tax refund or deduction for health and life insurance, travel and other expenses.
Structure. Corporations consist of shareholders who are the owners of a corporation, and elect the Board of Directors. The Board of Directors hires officers. Officers are typically the CEO and/or president, vice president, treasurer, and a secretary. If the corporation is large, there may also be a financial director, a human resources director, and other administrative officers. All officers are required to follow the rules and policies established by the Board of Directors. The officers handle the day-to-day operations of the corporation.
Easy to attract investors. The corporation can sell its shares to investors, which gives them an ownership interest in the corporation and makes it more attractive to investors.
uninterrupted existence. A corporation still exists even if the shareholders, board, and officers go out of business.
Transferable Shares. Corporate shares can generally be bought and sold freely, because the corporation is not affected by who the shareholders are. If the shareholders die or sell their shares, the corporation continues to exist and does not change. Of course, the transfer of shares may be regulated or restricted by federal or state securities laws.
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