Incorporation can be defined as the legal process that is used when establishing a firm, company or entity.
A corporation is totally separate from the owners and it has its own individual obligations and rights. Corporations can be created anywhere on the globe and are usually recognized by phrases like Restricted or Inc. in their names. Company incorporation means transforming common proprietorship or sole proprietorship to become an organization that is formally recognized the state of incorporation.
The regulatory authorities will view the Limited Liability Company (LLC) or new entity in a positive way. Furthermore, the incorporation of a company provides extra credibility with staff, distributors and potential clients.
Normally, a corporation is entitled to all legal rights that a person has apart from those of voting as well as other limitations. A company is granted the legal right of existence by the particular state that approves its legal creation.
A company that is incorporated in a particular state in order to reap the advantages of liberal corporate legal guidelines in it but operates in another state can only do so by filing for stipulation in the state that it wishes to run its enterprise. Usually, there is a certain fee that is mandatory in order to carry out business in a particular state. Legally, only a single company can have a particular name in every state.
Corporate share holders are issued with stock after incorporation and this is in exchange for assets and money. Annually, a board of directors is elected by the corporate share holders to discuss various corporate affairs; this can be on a monthly basis or once a year. This means that each year, the directors will elect officers such as treasurer, secretary and president to conduct the daily affairs of the company. It should be noted that the directors may decide to elect more officers such as vice presidents if they so wish.
Company bylaws and articles of incorporation will often by adopted by the shareholders and directors in order to fairly and properly govern the authority and powers of the shareholders, officers and even the directors.
Creation and Organization
The incorporation of a company comprises of the drafting of legal paperwork that are popularly called Articles of Incorporation. These are designed to list to down the following jobs:
- The enterprise’s main purpose.
- The name of the enterprise.
- The location of the enterprise.
- The total number of stocks that are being issued.
Incorporation of a company also comprises of registration fees and data that is jurisdiction-specific. Corporations are literally owned by the shareholders. Usually small companies tend to have just one director while big companies have a board of 12 or even more directors. Small companies can even have one shareholder while larger ones (publicly traded companies) have many shareholders (thousands). The directors are not liable to corporate debt except in certain tax statutes or in fraudulent circumstances.
The benefits of incorporating a company are numerous, the following are the main ones:
- There is access to financing for the purpose of enterprise actions through the sale of stock as well as other means.
- There is opportunity for effective tax planning for a proprietor via the use of lower tax rates compared to those of personal income.
- Simple transfers of ownership of the enterprise can be effected through the sale of shares.
The benefits of incorporating a company that have been listed above are not exhaustive as there are others.
Incorporation is beneficial because it forms a protective bubble, this is popularly called a corporate veil that shields the directors and shareholders of an organization. This means that a company that has been incorporated can take certain risks in order to progress without exposing its directors, proprietors and shareholders to any personal financial liability that supersedes the initial investment that they have in the firm.
It is important to keep in mind that the operations of a company proceed normally even after the departure of the owner. This is not true for LLCs, partnerships and proprietorships.
The above insightful information clearly explains the process of incorporating a company and its benefits. It is advisable to always the hire the services of a corporate lawyer when incorporating a company to simplify the process and to ensure that all your documents are in order.