Incorporating a business provides benefits such as limited liability, transferable ownership, and easier capital raising. However, corporations have the same legal rights as individuals, which can lead to controversy when companies break the law for financial gain.
Incorporating a company or business has many benefits for entrepreneurs. When a business transforms into a corporation, it becomes a separate legal entity from the people who own it. It has the same legal rights as a person, but these too are separate from the owners.
Setting up a company provides a long-lasting business foundation. If there was 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 lay claim to the company. Incorporating the business means it can continue regardless of the death of any shareholders, executives or managers. Also, ownership of the business can be transferred by selling shares in the company.
Another benefit of setting up a business is limited liability. With partnerships or sole ownership, owners are held personally liable for any commercial debt owed. Creditors can seize the owner’s assets, savings, personal home, or other assets to cover debts. A company’s shareholders are only liable for the money they have invested in a company and nothing else. This gives them great protection.
The incorporation may also offer a form of anonymity to its owners. After incorporation, the owner can open the business under a different name without acknowledging it to the public. There are also important tax-deductible benefits to setting up a company. Many companies are eligible for life and health insurance tax deductions, and of course, there are also retirement plan deductions.
One of the biggest benefits of setting up a company is that it is easier to raise capital. To this end, shares or other equity investments can be sold. Investors are less willing to give their money to sole proprietorships because of their personal liability issues. An investor can lose all of his money if a personal claim is made against a company, as he might be seen as a partner. There is less chance that an investor will lose all of his money by investing in a company.
These are some of the benefits of incorporating a company, but there is also controversy over the powers that a corporate entity status affords many companies. Since 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 violated antitrust, ethics and environmental laws and were severely penalized for it. However, the amount of money the companies make far outweighs the millions of dollars in fines that result from violating these laws. Therefore, with huge amounts of capital being made every day, many companies feel no need to comply with the law. Unfortunately, this is a definite plus of incorporating a business for some less than ethical owners.
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