Incorporate your business to avoid personal liability
- Author Braxton Hefner
- Published August 4, 2011
- Word count 504
An experienced business attorney can help you create a corporation. The most popular reason for the formation of a corporation is the liability protection a corporation offers to its shareholders. The owners of a corporation are not liable under law for the debts and obligations of the corporation. Since a corporation is a legal "person" it has the standing to sue and can be sued, distinct from its stockholders. Since a corporation is a separate legal "person", shareholders cannot be personally liable for corporate debts. The Stockholders can also sue the corporation through a derivative suit and the ownership rights (shares) can be easily transferred. The business has a perpetual life because of this legal person status. The deaths of officials or stockholders do not alter the corporation’s structure and the corporation continues in existence. Sole proprietors and general partners in a partnership who are personally and jointly responsible for all the liabilities of a business such as loans, accounts payable, and legal judgments. However the stockholders, directors and officers usually are not liable for their corporation’s debts and obligations. Their individual liability is limited to the amount they have invested in the corporation. If the shareholder has given a personal guarantee, he or she can be held liable for the debts of the corporation. Corporations can own personal assets like houses, cars or boats. If stockholder or director is personally involved in a lawsuit or bankruptcy, the assets of the corporation may be protected. A creditor of the owner of a corporation cannot seize the assets of the corporation. But they can seize personal assets of the owner including the ownership shares in the corporation. The shares in a corporation can be easily transferred to other either in whole or in part. Compared to other business structures, it is much easier to set up retirement funds and qualified retirement plans with a corporation.
A corporation can continue indefinitely and has an unlimited life span. Its existence extends beyond and is not affected by the death of shareholders, directors, or officers of the corporation. Corporations have more ability to raise money. Corporations acquire their own credit rating, and build a separate credit history by applying for and using corporate credit. These ratings have no connection to the ratings of the owners. Corporations can borrow and incur debts. They can also raise equity capital by selling shares. Equity capital does not have to be repaid and incurs no interest. A corporate structure can send a powerful message to customers, suppliers and other business associates. Many people see a corporation as a symbol of permanence, credibility and stature. People perceive corporations as being more stable than unincorporated businesses. Until it is paid out, the earnings of a corporation remain within the corporation. Profits are distributed to shareholders as dividends or through redemption of shares, or the repurchase of shares by the corporation. The board of directors generally determine when to declare a dividend. An experienced business attorney can explain the benefits of a corporation
Braxton Hefner writes for attorney video directory and find a lawyer resource, Viewmylawyer.com, where you can find a lawyer and view attorney videos. Find a find a Business lawyer at viewmylawyer.com attorney video directory.
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