What is a corporation?
A corporation (also called "company") is a legitimate entity that has its own lawful identity which is separate from its proprietors (called shareholders) and the people who oversee and maintain its day to day business (called directors and officers). The formation of a partnership happens following the proper filing of Articles of Incorporation (likewise called a Charter or Certificate of Incorporation) with the proper government office or authority.
Each company is made up of shareholders, directors and officers. Shareholders, as the name suggests, are the ones who hold (i.e., own) the shares in the company. By reason of the votes that are typically appended to the offers, the shareholders control the corporation. In the event that there is just a single shareholder, that individual has supreme control of the company. If the company has various shareholders, control of the partnership relies upon who has a larger part of the voting shares. The shareholders don't directly deal with the company. They practice their impact by choosing and evacuating executives and affirming or objecting major corporate decisions.
One of the debts of the shareholders is to choose the directors of the organization, for the most part on a yearly basis. Directors require not be shareholders of the company. The executives are in charge of regulating and controlling the corporation's undertakings, and naming the officers, who are thus in charge of the everyday running of the company.
Limited Liability. An advantage to incorporating is the limited liability aspect conferred upon its shareholders. The shareholders are not subject, by and large, for the debts and different commitments of the company. An investor's obligation for the debts of the company is constrained to the amount of assets each investor has put into the organization. Creditors only have rights against the company itself and not against the shareholders.
- Perpetual Existence. A partnership has the component of never-ending presence. It isn't reliant upon the life of its shareholders, directors and officers and won't be influenced by changes in, deaths or retirements of its shareholders since the corporation is viewed as a different "individual". This preferred standpoint takes into consideration the efficient exchange of ownership (i.e., its shares). Because of its autonomous legal status, it might possess property in its own right, go into contracts and sue (or be sued).
- Capital Acquisition. A company may offer more sources of raising capital than different business formations, (for example, sole proprietorships and partnerships). Corporations can issue different classes of shares as well as other debt instruments such as bonds, to raise capital, which is more alluring to investors.
- Tax Advantages. Corporations offer great tax an advantages such as lower income tax rates and corporation can carry forward operating losses of previous years to offset operating profits in current years.
- Credibility and Prestige. Incorporating gives your business credibility and prestige in its business dealings.
- Start-Up Costs. The underlying start-up costs (i.e., government charges) might be costly when contrasted with the start-up expenses of sole proprietorships and partnerships.
- Maintaining of Corporate Records. A company is required to accurately keep up its corporate records as well as hold meetings, choose executives and furnish shareholders with certain corporate financial data.
- Double Taxation. Income created by an organization is burdened at both the corporate level and shareholder level. A company must pay taxes on its income and the shareholders must pay taxes on dividends (i.e., profits they get from the company). Be that as it may, quite a bit of this two fold taxation might be limited by balancing the company's operational expense (i.e., salaries) with its income.