What advantages does incorporation give to shareholders and company?

Answer 1

The incorporation of a company has many tax and legal effects on the business. Furthermore, incorporation of a company requires the business to adhere to certain legalities in order to maintain its corporate status. Incorporation of a company may also have a significant impact on the company's ability to attract investors.

Liability

• One of the major effects incorporation has on a company is in the area of limited liability. When a company incorporates, it becomes a separate legal entity from the shareholders of the company. The shareholders of an incorporated company have limited liability for the company's debts and other obligations that may arise while running the business. As explained on the All Business website (http://www.allbusiness.com/), incorporating a company eliminates the possibility that a shareholder's personal assets can be used to satisfy corporate liabilities and obligations.

Taxes

• Incorporating a company means the business will be responsible for its own taxes. In a corporation, the company's taxes are paid separately from those of the shareholders unless a company incorporates as a subchapter S corporation. Shareholders of a subchapter S corporation may pass their share of company profits to their individual or joint tax returns. However, a regular corporation, also known as a subchapter C corporation, may be subject to double taxation. According to the All Business website, an incorporated company must pay taxes on all profits at the corporation's applicable tax rate. Shareholders of an incorporated company must pay taxes on all corporate profits received in the form of dividends. Incorporating a company allows the owners to capitalize on certain tax advantages such as tax-deductible health and life insurance plans provided to the company's employees.

Stock

• Incorporating a company allows you to issue stock as a mechanism to raise operating capital and attract investors. Incorporating a company may also allow you to attract key employees by using employee stock options as an incentive. In some cases, incorporating a company allows the business to issue more than one class of stock, which further increases the corporation's ability to attract investors. Each class of stock may have its own associated profit and voting privileges.

Formalities

• Incorporating a company means there will be certain state-imposed formalities that must be followed. For example, incorporated companies must hold at least one annual meeting. Depending on the state of incorporation, you may be required to hold the corporate meeting in the state where the business was formed. Furthermore, incorporated companies are required to record corporate minutes. Corporate minutes record information such as the manner in which decisions were reached, as well as election results for corporate directors and officers.

Existence

• Incorporating a company may allow it to exist well beyond the life of its initial owners because an incorporated company's existence doesn't depend on the corporation's ownership.

Answer 2

This is for everyone to discuss what is going to happen next. It makes sure that the other company is not looking elsewhere while negotiations are being made.