“Inc.” is an abbreviation for “Incorporated.” In business contexts, being “incorporated” indicates that an entity has established itself under local jurisdictional laws as an independent legal entity from its owners – this provides limited liability protection as owners are no longer personally responsible for debts or liabilities associated with the corporation. Requirements and regulations differ depending upon which state you choose for incorporation.
No doubt! Incorporation provides many advantages beyond limited liability for its owners (often known as shareholders). Here are a few additional advantages:
Transferability of Ownership: Shares in a corporation can easily be bought, sold and transferred allowing investors and changes in ownership to move their investments quickly and smoothly.
Access to Capital: Corporations have more access to funds through selling stocks and bonds.
Perpetual Existence: A corporation may continue to exist even if its owners or management change, provided it hasn’t been legally dissolved.
Tax Benefits: Corporations may provide tax advantages depending on their structure and your chosen jurisdiction. This varies widely.
Credibility: Incorporation can give a business greater credibility among suppliers, customers, and potential investors.
Suing and Being Sued: As a corporation, its ability to sue others or be sued depends on it being established as legal. Contracts may be entered into and property can be owned.
Centralized Management: To streamline management in a corporation, its board of directors and officers typically handle decision making – making the experience simpler to navigate.
Compliance Requires Work: Ensuring regulatory compliance takes effort, but its rewards include having well-documented processes which could prove invaluable in legal proceedings.
Unfortunately, incorporating your business does not only bring advantages; there are certain challenges involved that must be considered as well. Some examples would include:
Cost: Establishing a company involves legal and filing fees as well as ongoing compliance expenses that can add up.
Paperwork: Corporations are required to keep extensive records, such as accounting and minutes from meetings, among other documentation types.
Regulation Scrutiny: Corporations are subject to various laws and regulations that could have an impactful influence on various aspects of their operation, from hiring practices to safety standards.
Double Taxation: Corporations in certain jurisdictions, particularly the US, may be subject to double taxation – that is, profits are taxed once by the corporation and any dividends distributed are then taxed again at individual shareholder level.
For businesses seeking incorporation, filing “articles of incorporation” with the appropriate government agency – usually the Secretary of State in the US – is often followed by issuing shares and creating bylaws as well as the appointment of directors and officers.
As incorporation is an important decision for any business, it may be wise to consult legal and financial advisers regarding the best path forward.