A corporation is a business that is recognized by the state as a legal entity that is separate from its owners, also known as shareholders. The advantages of a corporate structure include limited liability, centralization of management, and permanence of duration. Corporations are able to raise capital and pay taxes at rates lower than those of individuals.
One important thing to consider when deciding whether to incorporate is how the choice will impact your business in the long run, in terms of both taxes and asset protection. To make an informed decision, it’s essential to seek guidance from an attorney and a certified small business tax professional.
The process of becoming a corporation varies by state and country, but two components are universal: articles of incorporation and corporate bylaws. Articles act like the birth certificate of your company, documenting its existence and laying out the details of its formation, such as the type of corporation, the amount of stock it will issue, and names and addresses for directors. Corporate bylaws are the internal rules that highlight how your corporation will be managed, including meeting procedures and officer positions.
While the process can be lengthy, there are many benefits to incorporating your business. Most importantly, incorporating protects the personal assets of your business’s owners from debts and lawsuits. In addition, the separation between a business and its owners can allow for easier fundraising and hiring employees.
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