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Legal
benefits of Incorporation
Protection of personal assets. Safeguarding
personal assets against the claims of creditors and lawsuits.
Sole proprietors and general partners in a partnership are
personally and jointly responsible for all the liabilities of
a business such as loans, accounts payable, and legal
judgements.
In a corporation, however, stockholders, directors and
officers typically are not liable for their company's debts
and obligations. They are limited in liability to the amount
they have invested in the corporation (eg: If $100 in stock
was purchased, no more than $100 can be lost). Corporations
and Limited Liability Companies (LLCs) may also hold personal
assets like houses, cars or boats. If one is personally
involved in a lawsuit or bankruptcy, these assets may be
protected. A creditor of the owner of a corporation or LLC
cannot seize the assets of the company, however, they can
seize their ownership shares in the corporation, as that is
considered a personal asset.
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Transferable ownership.
Ownership in a corporation or LLC is easily transferable to others,
either in whole or in part. Some states' laws are particularly
attractive to this end. For example, with a Delaware Corporation, the
transfer of ownership in a corporation is not required to be filed or
recorded.
Retirement funds. Retirement funds and qualified retirement
plans (like 401ks) may be set up more easily with a corporation.
Corporations can also fully deduct the cost of paying its owner's
health insurance.
Taxation. In the United States, corporations are taxed at a lower rate
than individuals. Also, they can own shares in other corporations and
receive corporate dividends 80% tax-free. There are no limits on the
amount of losses a corporation may carry forward to subsequent tax
years. A sole proprietorship, on the other hand, cannot claim a
capital loss greater than $3,000 unless the owner has offsetting
capital gains.
Raising funds through sale of stock. Capital from investors can be
raised for corporations easily through the sale of stock.
Durability. A corporation is capable of continuing
indefinitely. Its existence is not affected by the death of
shareholders, directors, or officers of the corporation.
Credit rating. Regardless of an owner's personal credit scores,
corporations acquire their own credit rating, and build a separate
credit history by applying for and using corporate credit.
Steps for
incorporation - many firms offer services so you can incorporate
online.
The filing of the Articles of
Incorporation (also called a Charter, Certificate of Incorporation or
Letters Patent). The first step is to check with your state's
corporate filing office (usually either the Secretary of State or
Corporations Commissioner) and federal and state trademark registers
to be sure the name you want to use is available. You then fill out a
preprinted form (available from commercial publishers or your state's
corporate filing office) listing the purpose of your corporation, its
principal place of business and the number and type of shares of
stock. You'll file these documents with the appropriate office, along
with a registration fee which will usually be between $200 and $1,000,
depending on the state.
How to Select a Corporation's Name. A corporate name is
generally made up of 3 parts: "Distinctive element", "Descriptive
element", and a legal ending. All corporations MUST have a distinctive
element and a legal ending to their names. Some corporations choose
not to have a descriptive element. In the name "Tiger Computers Inc."
the word "Tiger" is the distinctive element; the word "Computers" is
the descriptive element; and the "Inc." is the legal ending. The legal
ending indicates that it is in fact a legal corporation and not just a
business registration or partnership. You can choose from the
following words: Incorporated, Limited and Corporation, or their
respective abbreviations: Inc., Ltd. and Corp.
You'll also need to complete (but not file) Corporate Bylaws. These
will outline a number of important corporate housekeeping details such
as when annual shareholder meetings will be held, who can vote and the
manner in which shareholders will be notified if there is need for an
additional "special" meeting.
Reporting after
incorporation
Assuming your corporation has not sold stock to the public,
conducting corporate business is remarkably straightforward and
uncomplicated. Often it amounts to little more than recording key
corporate decisions (for example, borrowing money or buying real
estate) and holding an annual meeting. Even these formalities can
often be done by written agreement and don't usually necessitate a
face-to-face meeting.
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