The term corporation is a body or a legal person in the eyes of the law. It's most important feature of a corporation protects its owners from personal liability for corporate debts and obligations. The corporation is considered an artificially created legal entity that exists separately apart from those individuals who created it and carry on its operations. Starting your business as a corporation can be formed easily by simply filing an application for a charter with the respective state.
Operating as a corporation has its own share of drawbacks in certain situations. As a business owner, you will be responsible for additional record keeping requirements and administrative details and in some cases, operating as a corporation can create an additional tax burden also. It is the last thing a business owner needs, particularly in the early stages of the operation.
Moreover, apart from tax reasons, the most common motivation for incurring the cost of setting up a corporation is the recognition that the shareholder will not be legally liable for the actions of the corporation as the corporation has its own separate existence completely apart from those who run it.
Unlike partnerships, the life of the corporation is not dependent on the life of a particular individual or individuals.
It is always great that the ownership interest you have in a business can be readily sold, transferred, or given away to another member of your family. Property has to be retiled, new deeds drawn even when the slightest change of ownership occurs. With corporations, all of the individual owners' rights & privileges are represented by the shares of stock they hold. The way to a quick and efficient transfer of ownership of the business is also found on the back of stock certificate, where there is a place indicated for the shareholder to endorse and sign over any shares which are to be sold or disposed of.
Because of limited liability and the easy transferability of shares, it is usually an easier way to attract new investors into a corporate entity. Usually, when larger offerings to the public are involved, the services of brokerage firms and stock exchanges are called upon.
There are certain advantages of Incorporating, they are: the owners get protection from personal liability of company debts and obligations, the corporations get a reliable body of legal precedent to guide owners and managers, they are best vehicle for eventual public companies and can more easily raise capital through the sale of securities, the corporations can very easily transfer ownership through the transfer of securities and can create tax benefits under certain circumstances, but note that C corporations may be subject to "double taxation" on profits. In order to avoid this, many business owners choose to operate their corporations under subchapter S of Internal Code and this entity allows income to pass through to the individual shareholders.
