Under Rhode Island law, a business may incorporate. If it chooses to do so, it is thereafter recognized as its own legal entity. As a separate entity from the owners, the business is then considered to be operating on its own when it buys and sells property, assents to contracts and exercises legal rights. A business seeking to incorporate in Rhode Island must file with the Secretary of State in accordance with established guidelines.
Benefits of Incorporation in Rhode Island
A corporation enjoys benefits that unincorporated companies do not. Primarily, it cannot be held accountable for an amount of debt greater than the value of the assets that the owners have invested in it. Had the business remained unincorporated, owners risk losing their personal property should the business become unable to satisfy its liabilities. Furthermore, banks in the Newport area prefer to evaluate the credit worthiness of a business as a whole rather than that of individual owners. This makes the process of obtaining corporate loans simpler. Lastly, 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 comes at a price. First, Rhode Island may charge a filing fee to process applications for incorporation. Also, the corporation will pay taxes 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 Newport lawyer, you can avoid this disadvantage.