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. 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
Certain advantages inure to a business in California that has incorporated over one that has not. First, a corporation's liabilities can never go beyond the amount invested in the business by the owners. Without incorporation, the personal property of business owners is at stake should the company become unable to pay its debts. A corporation might also find it easier to finance itself through loans, allowing creditors in the Shafter area to evaluate their investment by assessing the corporation rather than the individual credit-worthiness of its owners. Finally, a corporations charter requires that ownership be divided into stakes or "shares" of stock, all of equal size. This makes the process of transferring control much more practical.
Costs of Incorporation
Incorporation can be costly. First, a modest filing fee might 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 might avoid this disadvantage with proper planning and assistance from a local Shafter lawyer.