California 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 acting on its own when it buys and sells property, assents to contracts and exercises legal rights. A business seeking to incorporate in California must file with the Secretary of State in accordance with established guidelines.
Benefits of Incorporation in California
There are distinct benefits to incorporating a business. Most importantly, liabilities the business accrues may be satisfied only by assets that the owners have specifically invested in it. With unincorporated businesses, personal property of owners can be liquidated in order to satisfy the liabilities of the business. Furthermore, banks in the Alhambra 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 California 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 Alhambra lawyer.