A company, an incorporated organization is a legal entity that is made up of one or many people. Those who own/control the company are called stakeholders. Those who actually formally own the company and have a financial stake or investment, are called shareholders. The money these shareholders put in is pooled into a central fund which is enhanced ,if and when need be, by loans or other means of financing. In order to ensure that the wants, needs and visions of these shareholders are executed, a Board of Directors is appointed to run the company, often from afar. This Board represents and acts on behalf of shareholders through decision making, resource allocation, etc. When the company becomes profitable, shareholders receive a portion of the profits equivalent to that which they put in. Because of the way a company is structured, that money is pooled centrally and incorporated, these companies/corporations are considered separate legal entities under the law. This means shareholders are not held personally liable for any issues or debts the company may face.
Some of the advantages of incorporation/larger scale companies includes:
- Less Liability:
As mentioned, you receive limited liability and are exempt from the implications, except for that which one invested in a company.
- Extended lifespan:
Corporations don’t die when owners do. These organizations can be passed from generation to generation and have an unlimited life cycle.
Banks, angel investors, and other funding sources will be a lot more likely to provide loans for greater amounts at better rates for incorporation.
- Tax Benefits:
Incorporation provides a series of tax advantages, especially for shareholders. The type, extent and nature of these benefits depends on where you live and the regulations there.
Though there are a number of benefits, incorporation has its drawbacks as well. There is paperwork galore, some tax disadvantages and potential implications on your personal taxes as well.