Why Incorporate a Company?

Corporations have several advantages over other business structures

There are three main types of businesses: sole proprietors, partnerships and corporations. Of these, only the corporation is considered a legal "person," with many of the same rights and responsibilities as organic persons. A corporation (from the Latin "corpus," meaning "body") is brought to life by the government that charters it. That government legally controls the corporation and can dissolve it at any time. But there are many reasons why you might incorporate a company.

Easy Share Distribution

The percentage of ownership in a corporation is divided up into shares, which are purchased by the investors. They then become the company's owners, and they are paid dividends based on how many shares they control. These shares can be easily bought and sold to others (like shares on a stock market) without restructuring the company's charter, which would be the case if the ownership of a partnership or sole proprietorship was transferred to others.

Liability Protection

In general, the owners of the corporation are shielded from any personal obligation to repay the debts that the corporation incurs. What this means is that if you are the owner of an incorporated business, you can use the company to enrich yourself during the good times, by paying yourself dividends and a salary. Then you can cut your losses if things take a turn for the worse, with no personal liability for company debts.

Raising Capital

According to entrepreneur.com, getting funding from investors for a corporation is often easier than it would be to get investors for a sole proprietorship or partnership. This is because the investors can purchase shares to have direct ownership in the corporation, rather than having to sign a separate contract to share in the profits, as would be the case with other business structures. The liability protection that corporations have is also attractive to investors.

Eternal Lifespan

If you own a sole proprietorship or a partnership, that business may not be able to continue without you after you die. By definition, the legal structure of the company would automatically dissolve if one of the main owners died. But this is not the case with a corporation, which is legally alive with or without its chief board members. These can be replaced easily within a corporation, so that business can continue as usual.

References

• Entrepreneur.com: How--and Why--to Incorporate Your Business