Alabama law allows a business to incorporate and be recognized as its own legal entity. As a separate entity from the owners, the business is then considered to be functioning on its own when it buys and sells property, assents to contracts and exercises legal rights. The Alabama Secretary of State receives and processes applications for incorporation, which must be submitted in compliance with local guidelines.
Benefits of Incorporation in Alabama
Advantages of incorporation are many. The primary benefit is that the liabilities of the business can only be satisfied by the assets specifically invested into the company by the owners. Had the business remained unincorporated, owners risk losing their personal property should the business become unable to fulfill its liabilities. Furthermore, banks in the Jackson area prefer to evaluate the credit worthiness of a business as a whole rather than that of individual owners. This makes the process of acquiring corporate loans simpler. Finally, ownership of a corporation is divided into equal portions or "shares" of stock, which may be bought and sold much more easily than the ownership of an unincorporated business.
Costs of Incorporation
Incorporation can be costly. First, a modest filing fee may be charged in Alabama for any business that wants to incorporate. Also, a corporation is taxed as its own entity. In other words, the profits a corporation makes are now taxed separately, while any disbursements to shareholders are taxed as individual income. This is called double taxation. However, a business may avoid this disadvantage with proper planning and assistance from a local Jackson lawyer.