Incorporating a business or company has many advantages for the business owners. When a business turns into a corporation, it becomes a legal entity separate from the people who own it. It has the same legal rights as a person, but these are also separate from the owners.
Incorporating a company gives a long lasting business basis. If there were only one owner of the company, the death of that owner would usually mean the end of the company. It could also mean legal battles with family members who could claim rights to the company. Incorporating the business means that it can continue regardless of the death of any shareholders, executive officers or managers. Also, the ownership of the business can be transferred by selling stocks in the corporation.
Another advantage of incorporating a business is limited liability. With partnerships or sole ownership, the owners are held personally liable for any business debt they owe. The creditors can seize the owner’s goods, savings, personal home or other assets to cover the debts. The shareholders of a business are only liable for the money they have put into a company and nothing else. This gives them a great deal of protection.
Incorporating can also offer a form of anonymity to its owners. After incorporating, the owner can open up the business under a different name without acknowledging so to the public. There are also major tax deductible benefits to incorporating a company. Many corporations benefit from life and health insurance tax deductions, and of course there are also retirement plan deductions.
One of the biggest advantages of incorporating a company is that it is easier to raise capital. Stock or other equity interests can be sold to do this. Investors are less eager to part with their money to sole proprietor businesses due to their personal liability issues. An investor may lose all of his money if a personal claim is made against a company, as he could be seen as a partner. There is less chance of an investor losing all of his money by investing in a corporation.
These are a few of the advantages to incorporating a company, but there is also controversy over the powers a legal entity status affords many corporations. As corporations have the same legal rights as a person, they also have the same legal rights when it comes to breaking the law.
Many large global corporations have broken the law on numerous occasions. They have broken anti trust, ethical and environmental laws and have been severely penalized for doing so. However, the amount of money the corporations make far outweighs the millions of dollars in fines from breaking these laws. Therefore, with huge amounts of capital being made every day, many corporations do not feel the need to abide by the law. Unfortunately, this is a definite advantage to incorporating a business for some less than ethical owners.