When a business incorporates, it becomes a legal entity that survives of its own accord. It is no longer a dependent branch of its owners. If the principals were to pass away or sell their respective stakes in a corporation, the entity would continue to exist in the wake of their absence or departure. In this article, we'll explore incorporation in the context of creating a legal entity. I'll describe the primary benefit of incorporating as well as the specific roles played within the corporation.
The Main Advantage Of Incorporation
When a company operates as a partnership, sole proprietorship, or under a similar structure, its owners and investors are vulnerable to court judgments related to the business. For example, if the company is unable to pay back money that was loaned to it, its creditors could legally pursue the owners and investors, potentially gaining access to their personal assets. Similarly, if somebody is injured on the company's property, that person could legally pursue the owners and investors for restitution.
By incorporating, the principals enjoy limited liability. That is, their personal assets are normally protected from creditors and legal judgments. It's important to realize that this protection only extends to the point to which the principals have not acted fraudulently or otherwise conducted themselves improperly. For example, in the infamous Enron case, it was proven that the principals had broken laws and therefore, their personal assets were vulnerable.
The Roles Within A Corporate Entity
Every legal corporate entity consists of three main parties: officers, directors, and shareholders. The officers are responsible for watching over a company's operations. For example, the Treasurer oversees the finances, the Secretary is responsible for keeping records of the business, and the President provides strategic direction for the company. Most states require the existence of all three roles.
The directors are typically involved with electing - or appointing - the corporation's officers, authorizing executive compensation, and issuing shares of stock, when applicable. Finally, the shareholders own a portion of the incorporated business. If the shares they own grant them voting privileges, the shareholders can use that privilege for a number of purposes. They can remove and appoint directors, vote for a corporate reorganization, or completely liquidate the business.
Choosing The Right Form Of Incorporation
There are several different forms of incorporation, including limited liability corporations, C Corps, and S Corps. Each type has inherent strengths and potential limitations. Business owners who are considering incorporating should consult a lawyer for legal advice to ensure they select the form that is consistent with their goals. An experienced lawyer will be able to examine a company with respect to its long-term growth potential and offer the appropriate guidance.
![[Valid RSS feed]](http://www.freebie-articles.com/images/rss.gif "XML Feed For RSS")
Category Rss Feed
Print This Article
Add To Favorites