Forming Small Business Corporations
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Forming small business corporations is like a double-edged sword since it has its own advantages and disadvantages. Small business owners can have minimal personal liability as far as business debts are concerned. Although that sounds like a beneficial thing, it can be very tough to run a corporation.
In fact, limited liability is the main reason on why most small businesses are enticed to form a corporation. In keeping this limited liability, there are, however, more complicated tax returns that need to be handled along with the maintenance of good records. In addition to that, other formalities that are common to corporations such as decision making, recordkeeping, and others must be performed. Therefore, one must be very organized prior to incorporating.
Limited Personal Liability
Creditors cannot touch the personal assets of corporation members, however big or small the losses are. Payment for any business debts therefore comes from the corporate assets. You cannot lose any other property other than the money that you have invested so you are protected in many ways when you are in a corporation.
However, this can be revoked if the corporation owner does something that can make him personally liable. Some of these are direct and personal injury to someone, personal guarantee on a bank loan or other debts, failure to deposit withholding taxes, intentional fraudulent activities, and failure to separate the corporation from personal affairs.
In addition to those, one must be able to keep up with the formalities that take place in corporations. They are adequate investment of money in the corporation, formal issuance of stocks to shareholders, regular meetings, and maintenance of business transactions and other records. Keep this in mind because if you fail to do those, the courts can reason out that you do not need protection since the corporation does not really exist after all.
Corporations and Insurance
Incorporating should not be seen as an alternative to insurance. It is still important to have your own corporate assets insured so that you could protect them from the hassles of lawsuits. One good thing to remember in choosing liability insurance is that it should address the different risks that are involved in the daily operations of the business.
In addition to that, insurance can give you more protection more than a limited liability will do. However, in the case that your corporation defaults in its debts, commercial insurance will most likely leave assets from unpaid debts vulnerable whether these are guaranteed personally.
Corporation Formation
Forming a corporation will require you to submit articles of corporation at your state office. These are forms that are filled out with the basic information regarding the corporation. After that, you should come up with corporate bylaws. These are not going to be filed in the state office, but they are necessary to guide you through the different formalities.
Finally, the initial owners must be issued their respective stock certificates. Small business corporations must be able to keep up with the different formalities such as annual meeting and well-organized financial records, to retain a corporate status.