Should You Incorporate Your Business? By George Meszaros At Isnare.com Ezine Articles

A common question among people starting a business whether or not they should incorporate. Incorporation means that your company is a separate legal and financial entity from yourself. Legally a corporation is treated as a citizen. It even has its own social security number for tax purposes, called a Federal Tax ID.

Most people incorporate to limit their personal liability so that they shield their personal assets. For instance, if your incorporated business was sued and found liable for damages, the winner could not take your personal car or home. Furthermore, incorporating creates a more professional image, and often helps with your taxes. If you plan to receive outside investment to grow your business corporation is the way to go. Incorporation protects you in many regards, but it does not protect you from any criminal charges by you or the corporation. You can’t hide behind your corporation to commit illegal acts and expect to be free from liability.

By investing cash or other property in your corporation you become an owner of an interest. In exchange for your personal investment you are issued stock in the corporation. A person with that ownership interest is called a stockholder or shareholder. Once you become a shareholder your liability is normally limited to the value of the cash or other property you have contributed to the corporation in exchange for stock.

As a general rule, the shareholder's assets not invested in the corporation are safe from the corporation's creditors. A shareholder may become personally liable for corporate debts if the corporation is not formed in compliance with or it operates in violation of applicable statutes, or if the corporation is functioning as a mere front for its shareholders rather than for corporate purposes. In other words, if you are simply creating a corporation to avoid liability, may become personally liable.

Under certain circumstances, corporate officers may be held personally liable for the corporation's failure to pay state and federal income tax withholdings. Additionally, a shareholder may be required to personally guarantee a loan of the corporation in order to satisfy a lender. If a shareholder does so, his liability is no longer limited to the value of his investment in the corporation.

The business affairs of your corporation are managed by the board of directors and officers. The directors are elected by the shareholders. For this reason, while shareholders have the ultimate control of a corporation because of their stock ownership, the every day management lies with the board of directors through its officers. In small corporations the shareholders, directors and officers are often the same persons.

Published At: Isnare Free Articles Directory http://www.isnare.com
Permanent Link: http://www.isnare.com/?aid=167622&ca=Business

Important Notice DISCLAIMER: All information, content, and data in this article are sole opinions and/or findings of the individual user or organization that registered and submitted this article at Isnare.com without any fee. The article is strictly for educational or entertainment purposes only and should not be used in any way, implemented or applied without consultation from a professional. We at Isnare.com do not, in anyway, contribute or include our own findings, facts and opinions in any articles presented in this site. Publishing this article does not constitute Isnare.com's support or sponsorship for this article. Isnare.com is an article publishing service. Please read our Terms of Service for more information.