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The Fundamentals of Corporation Establishment

By Edited Feb 8, 2016 0 0

A corporation is composed of many individuals united in one body. This is usually created under state law, and gives members, typically called shareholders, the right to grant property, contract obligations, sue and be sued, enjoy privileges and protection, and exercise their rights over the company.

Corporation establishment like other types of business structures could be complex since it also needs to deal with business law and other aspects. People who will be involved in establishing a corporation must have sufficient resources especially for financial needs.

An understanding of business laws, proper training and comprehensive planning is also important for shareholders so that the corporation may easily deal with the legal demands and abrupt changes in the business world.

Corporations may be private and public:

  • Private Corporation- This is when the whole interest of the corporation does not belong to the government and if the corporation is not formed for the administration of municipal or political power.

  • Public Corporation- Also called, "political" and "municipal", are corporations that have a portion of the state and in some case, there are also some private interests.

There is also another class of corporation that is founded for the public and not for political or municipal purposes. The interest of such corporation wholly belongs to the government.

Advantages of Corporation

Corporation also has advantages like other business structures. Primarily, it has continuous existence, it will only be dissolved in case shareholders decided to join or merge with other business or close it already.

The shareholders and owners of the corporation have their own rights and privileges and are entitled for reimbursement or deduction of some expenses that includes life and health insurance.

Additionally, corporation has limited liability, and that shareholders have limited liability for debts since corporation is a separate legal entity. Shares are also transferable and it can be transferred anytime only if there are no agreements as to whom and when the shares may be transferred or sold.

A corporation also has its own management structure. And its stock structure makes it more possible to attract skilled employee because there are ownership interest offered in the corporation's stock form.

Corporation's Disadvantages

While there are advantages in establishing a corporation, there are also disadvantages that will be encountered. Mainly, there are lots of paper works that must be accomplished including bank accounts and records, records for the directors and shareholders meeting and tax returns and reports.

Also, corporation establishment involves financial matters and there are lots of taxes and fees that must be paid.

Establishing a Corporation

Should two or more people decide to form a corporation, knowing the advantages and disadvantages of such business structure is important. There are also some steps that must be followed:

  1. Select a business name that was never used by other corporations and must also abide with the stipulations of the state.

  2. File a formal paper work and pay the amount specified by the state in forming a corporation. Typically, this range from $110 to $800.

  3. Get permit and license needed in running a business.

  4. Draft the corporation by-laws and operation rules.

  5. Assign and designate the corporation directors.

  6. Conduct preliminary meeting for the directors' board.

  7. Provide stock certificates to corporation owners.

  8. Hire business lawyers who specializes in corporation establishment, that you can consult with anytime you encounter problems and difficulties, or when a certain issue within the corporation arises.



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