Should you incorporate your business? Find out when and why
with this excellent guide to incorporation.
Corporation – What Is It?
By
Richard Chapo
Simply put, a corporation is a form of business entity. You
probably already know this, so this article delves into a few of the
particulars.
Separate Entity
For legal purposes, a corporation is considered a separate
legal entity from those forming it. Although it is not a living person, a
corporation generally has the same rights. It can own property, enter contracts
and claim constitutional rights. Unluckily, a corporation also must pay taxes
like you and me.
Unlike each of us, a corporation can “live” for 100 years, 200 years or more.
Certain forms of corporations were known to exist as far back as in the days of
Ancient Rome. Despite it’s gladiator tendencies towards other companies,
Microsoft was not the first corporation.
State of Incorporation
These days, state law authorizes and governs the creation of corporations. In
1811, New York was the first state to pass laws authorizing corporations. As
other states were created, the passage of laws authorizing the corporate enitity
became standard practice. Today, corporations can be formed in every state.
The Secretary of State for each jurisdiction typically controls the
incorporation process. Corporations are “residents” of the state in which they
maintain offices, have employees, receive mail, etc. This is true even if it
conducts business in other states.
A corporation is considered a “domestic entity” in the state in which it is
incorporated. In all other states, it is considered a “foreign entity.” For
example, a company like Nomad Journals is a domestic corporation in Colorado,
where it is based. When I buy a travel journal from it, California authorities
may consider it a foreign corporation and require it to conform to California
law. Foreign corporation status is a technical area of law and well beyond the
scope of this article. Nonetheless, just keep in mind that the state of
incorporation can be a key issue, particularly when it comes to tax issues.
Limited Liability Corporation
Ah, the good stuff. The primary benefit of using a corporation is the limited
liability advantage. Since it is considered a separate entity from shareholders,
a corporation creates a barrier between corporate liabilities and the assets of
shareholders. The only risk shareholders take is the loss of their investment in
the corporation.
Assume I own a home worth $800,000 in San Diego and invest $10,000 in a new
business. The business is incorporated in California and is going to dominate
the VHS tape market. Alas, my fortune teller apparently had an off day when she
told me to invest and the company goes bankrupt in six months. I will lose my
$10,000 investment, but not my $800,000 home. If the business had been formed as
a partnership, I would lose the investment and some or all of my home depending
on the business debts.
In Closing
Considering it was originated in the distant past, the corporate entity is
still remarkably relevant in modern times. Although the proliferation of the
limited liability company has taken some wind out of the sails, the corporation
remains a staple of the business environment.
Richard Chapo, Esq., is with
http://www.sandiegobusinesslawfirm.com offering business law advice to
California businesses.
This article is for general education purposes and does not address every
facet of the subject matter. Nothing in this article creates an attorney-client
relationship.
Article Source: http://EzineArticles.com/
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