Law & Start/Close a Business



INCORPORATION

What Is Incorporation?
Incorporation is a process by which a corporation is formed. Every corporation has to be incorporated (or registered). It is the process by which a business registers and gets a state charter allowing it to become a legally registered corporation.


Why Incorporate A Corporation?
Operating through a limited liability corporation has a number of advantages over other options, such as sole trader, partnership, or trust.

The following are the main advantages summarised for you:

  1. Limited Liability:
    The main advantage of a corporation is that it separates the business risk from the risk to the personal assets of the shareholders. It limits the amount of money that a business owner is liable for, should things go wrong. The corporation allows shareholders to limit the maximum liability for the debts of the corporation to the amount of capital that they have not paid up in their corporation. This is totally different from the position of a sole trader or partner in a firm who is liable for all the debts of the business and has unlimited liability.

  2. Name:
    Forming a corporation allows you to register a business name and therefore tell the rest of the world of your existence. The Sec of State will not approve any corporation names that are similar to any already registered. So this gives the new corporation owner a certain amount of protection or exclusivity. It should be noted that the approval of a corporation name does not guarantee that the name cannot be used or taken by someone else. The only foolproof name protection available is by registering your name as a trademark or a service mark with the Commissioner of Trademarks.

  3. Legal Entity:
    A corporation is looked on as being a separate legal entity in the eyes of the law as distinct from shareholders. This means that a shareholder can have an agreement with the corporation or be employed by the corporation, or lend money to the corporation on the same basis as any other outside party. The concept of separate legal entity is very important.

  4. Continuity:
    Because the corporation
    is a separate legal entity its life is not affected because one or all of the shareholders leave. If a shareholder wants to leave, they only have to sell their shares in the corporation to someone else. The corporation continuity is not affected in any way.

  5. Finance:
    The corporation provides different opportunities for raising money when it is needed. This can be by issuing of new shares, or bringing in investors, or borrowing money from a lending institution and offering the security of the business.

  6. Security for loans:
    It’s possible for shareholders to lend money to the corporation and have it secured by way of debenture.


If You Don’t Want To Form a Corporation
Other options are available if you are looking for a new corporation, but are reluctant to go through the process of registering your own.

A very quick option is to purchase a corporation “off the shelf”. These are known as shelf corporations.

These are non-operating corporations, already incorporated and sitting on the shelf ready for new owners. A person can purchase one and simply change the shareholding, as well as the capital and other details, and take the corporation over as their own.

It simplifies the process of setting up a company and is generally used by those who want a company immediately available because of an arrangement or a contract that is being settled.

Many lawyers and accountants offer this service.