Advantages of forming a corporation
A corporation is a separate and distinct legal entity created under the laws of a state. The people who are part of the legal entity consist of shareholders, board of directors and 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 for forming a corporation. Because a corporation is considered a separate legal entity, shareholders’ personal assets are not at risk to satisfy corporate obligations.
Corporate Tax Treatment. A corporation pays taxes separately from its shareholders at the corporate rate. Shareholders pay personal income taxes on the payments they receive from the corporation for salaries, bonuses, and dividends.
Stock incentives. Corporations can 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 are made up of shareholders who own a corporation and elect the Board of Directors. The Board of Directors hires officials. Officers are typically the CEO and / or president, vice president, treasurer, and a secretary. If the corporation is large, there may also be a Chief Financial Officer, a Director of Human Resources, and other administrative officers. All officers are required to follow the rules and policies established by the Board of Directors. Officers manage 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, the Board, and the 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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