The Importance of Protecting Your Corporate Status

A corporation is a legal entity that is created and regulated by state laws. For legal, practical, and tax purposes, a corporation is legally separate from any of the people who own, control, manage, or operate it. If you want the advantages of having a corporation, you must follow legal requirements for running it. If you don’t abide by the rules, you could find your business stripped of its corporate status—and the benefits of that status, such as:

Limited liability. Corporate directors, officers, and shareholders usually are not personally liable for the debts of the corporation. This means that if the corporation cannot pay its debts or other financial obligations, creditors cannot usually seize or sell a corporate investor’s home, car, or other personal assets.

Business taxes and flexibility. A corporation is a separate taxable entity. Business income can be sheltered in the corporation among the owner-employees as they see ft to reduce their overall tax liability.

Employee fringe benefits. Owner-employees of a corporation are eligible for deductible fringe benefits, such as sick pay, group term life insurance, accident and health insurance, reimbursement of medical expenses, and disability insurance.

Commercial loans and capital investment. Lending institutions often give the risk-conscious corporate lender special preferences. Corporations can decide to raise substantial amounts of capital by making a public offering of their shares.

Business credibility. Corporations have an air of reputability about them. In other words, although placing an “Inc.” after your name will not directly increase sales, it forces you to pay serious attention to the structure and organization of your business, something that is likely to improve all aspects of your business.

Perpetual existence. A corporation has an independent legal existence that continues despite changeovers in management or ownership. Of course, like any business, a corporation can be terminated by the mutual consent of the owners.

Access to capital. Private and public capital markets prefer the corporate form over all other business forms, giving the corporation enhanced access to private and public capital. Public offerings can be made by means of a traditionally underwritten initial public offering (IPO) or a direct public offering (DPO) of shares by the corporation itself to its client or customer base.

Shared from: Corporate Minute Books Canada

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