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 office of the Secretary of State is the agency that receives applications for incorporation in Alabama, and they must be completed in conformity with certain guidelines.
Benefits of Incorporation in Alabama
An incorporated business enjoys certain benefits, the most important being a limit of liability for the shareholders. The most shareholders can lose is the amount they invest in the business. If the business had remained a personal asset of the owners, they would run the risk of losing their personal property to pay for the company's financial liabilities in case of default. Furthermore, a business that has not incorporated puts the unnecessary burden on creditors in the Montgomery County area to evaluate the credit worthiness of individual owners rather than that of the business, making loans more cumbersome. Lastly, a corporation's ownership stake is divided into equal slices or "shares" of stock, which make investments in the business much easier to transfer.
Costs of Incorporation
There are costs associated with incorporation, both short and long term. First, businesses in Alabama may be charged a fee to incorporate. Also, a corporation is taxed as its own entity. The individual incomes of the owners are still taxed also, and this can mean the same income is taxed twice, known as double taxation. With proper planning and assistance from a local Montgomery County lawyer, you can avoid this disadvantage.