California law allows a business to incorporate and be identified as its own legal entity. After incorporation, buying and selling property, agreeing to contracts and exercising legal rights are considered acts of the business itself and not its owners. In California, the process of incorporation is begun by filing with the Secretary of State in accordance with certain guidelines.
Benefits of Incorporation in California
Benefits 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 Live Oak area prefer to evaluate the credit worthiness of a business as a whole rather than that of individual owners. This makes the process of receiving corporate loans simpler. Finally, 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
Along with a possible fee to apply for incorporation in California, there are other costs that corporations incur. The most important is that 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 might avoid this disadvantage with proper planning and assistance from a local Live Oak lawyer.