California law allows a business to incorporate and be recognized as its own legal entity. After incorporation, buying and selling property, assenting to contracts and exercising legal rights are considered acts of the business itself and not its owners. The office of the Secretary of State is the agency that receives applications for incorporation in California, and they must be completed in conformity with specific guidelines.
Benefits of Incorporation in California
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 Mcfarland 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 California 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 Mcfarland lawyer, you can avoid this disadvantage.