A primary knowledge about the different legal forms of the business is essential for a beginner. It not only helps in choosing for profit-maximizing alternatives but also leads to exploring of growth prospects in future. A corporation is the one business format which helps to achieve the goal of profit maximization. But, the question is what type of business is incorporated?
Let’s have a look at what a corporation is all about and how it impacts the owner.
Benefits of Running an Incorporated Business
An incorporated business is often known as a corporation which is separate legal entity than its owner. So, owners of such business have no legal obligation to pay debts from personal resources. Further, corporations in different countries also enjoy the tax cuts. Consequently, owners have to pay lesser tax on their income.
Usually, there are different shareholders that own a corporation. And, it is possible for owners to gather more capital through the issuance of shares in the market. Hence, a corporation which operates on a larger scale has more scope of growth than other different types of businesses.
Prerequisite for Incorporating a Business
While a corporation offers different benefits it also has one drawback that its formation is legally complex, which is not a case with sole proprietorships and partnerships.
Different states have different laws regarding the formation of corporations. Generally, there is a prerequisite for getting the business incorporated. And, it is more about informing the relevant authorities about different elements related to a business.
Here is information that a person needs to furnish for getting a business incorporated.
- Communicating the business purpose.
- Selecting a valid name for the company that also has the word corporation or Inc. in the end.
- Disclosing the par value of a share.
- Having a registrar.
- Stipulating the number of shares which the company is willing to authorize.
- Disclosing the names and addresses of the company’s directors.
- Revealing about the company’s intentions to issue preferred as well as common shares and disclosing any relevant information.
Why Choose For an Incorporated Business
In the United States of America and different other countries, individuals have to pay more tax than corporations. Hence receiving a tax cut is the major benefit that an owner of an incorporated business can have. Further in case of solvency, the personal assets of shareholders are not liable for paying a debt, which is indeed a case with sole proprietorships and partnerships.
But startups and businesses who have limited resources should refrain from incorporating their businesses at least in the initial stages.