Choosing a business structure is a major step in getting your company organized. There are advantages and disadvantages to every type of business, depending on your particular needs and the nature of your enterprise. However, incorporating a small business provides many benefits that are worth considering.
Very small businesses, such as sole proprietorships and partnerships, depend on their owners for their existence. Corporations, on the other hand, are separate legal entities, so they continue after the death or departure of their creators, officers or board members. This perpetual existence can make a corporation more attractive to potential investors than other business types. It also makes it easier to plan several years or even decades into the future. However, a corporation will not automatically last forever. It is considered perpetual in that it will go on until its shareholders agree to dissolve it.
Once a corporation is formed, its owners and organizers are, for the most part, no longer personally liable for the debts and other obligations of the business. This is because the corporation is considered a separate entity with liability for its own activities. There are a few exceptions to the limited liability aspect of forming a corporation, so be sure to follow all applicable regulations, and remember to look into obtaining liability insurance for your business.
A corporation, unlike a sole proprietorship, partnership or certain other business types, can sell and issue stock. This is often an excellent way to attract investors because it means their shares in the company are legally established and guaranteed. An incorporated business may seem more stable than other types as well.
Clarity of Structure
Small businesses often operate at the whim of their owners. This can make things difficult for both the owner who takes on everything and the employees, who need to get approval from one individual before proceeding with any new ideas. However, corporations are required to be structured in a certain way to guarantee that they are in fact separate entities and not merely alter egos of their organizers. Although some corporate formalities can seem like a nuisance to keep up with, there are a number of benefits to having an established structure. For example, a corporation has a board of directors as well as officers and shareholders. Each of these groups has certain responsibilities and obligations that are clearly established and defined, so there is little confusion about who is in charge of what.
The Allure of Stock Options
Finding and retaining good employees is a challenge most businesses face at one time or another. The first hurdle when trying to fill an open position is attracting qualified applicants. Although crafting an effective job description is vital, offering a variety of benefits is also a good idea. Offering stock options in addition to health insurance, vacation days and so on can make your job opening even more attractive to highly qualified applicants.
Owning a share of the company can be a powerful motivator for existing employees, providing them with a sense of ownership in the organization’s mission and values. Personnel who are personally invested in the success of a company may work harder and provide better customer service than those who are simply showing up for a paycheck. Consider both stock grants, where each employee is automatically granted a certain number of shares, and stock options, where employees can purchase additional shares at a set, discounted price.
Carefully consider all the pros and cons of incorporating your business before you make a decision. Think about where your company is headed and how much you expect to scale during the life of the operation. If you decide to incorporate, get legal advice to help you navigate the paperwork that your state requires. As long as you choose your business configuration wisely and then meet all of the requirements for maintaining it as a legal entity, your new corporate structure may be the best thing that ever happened to your business.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.