A corporation (also called “company”) is a legal entity that has its own legal personality which is distinct from its owners (called shareholders) and the individuals who manage and run its affairs and business (called directors and officers). The creation of a corporation occurs following the proper filing of Articles of Incorporation (also called a Charter or Certificate of Incorporation) with the relevant government department or authority.
A corporation consists of shareholders, directors and officers. Shareholders, as the name implies, are the ones who hold (i.e., own) the shares in the corporation. By reason of the votes that are usually attached to the shares, the corporation is controlled by shareholders. If there is only one shareholder, that person has absolute control of the corporation. If the corporation has numerous shareholders, control of the corporation depends on who has a majority of the voting shares. However, the shareholders do not directly manage the corporation. They exercise their influence by electing and removing directors and approving or disapproving major corporate decisions.
Alvox Accounting & Tax Services has enriched experience of creating different types of incorporation like professional corporations those deals with specialties and variety of professionals in federal and provincial level. We empower clients with deep knowledge and awareness about advantages and features of incorporation before taking their decisions.
The advantages of incorporating a business are tied in to the corporation’s separate legal personality and limited liability. Some of the advantages include:
- Limiting the liability of shareholders for the debts, obligations and liabilities of the corporation to the amount of their initial investment to purchase shares in the corporation. In contrast, a sole proprietor or a partner could potentially lose personal assets beyond those invested in the business.
- It is possible to separate the owners, directors and employees of the business within a corporation, whereas a sole proprietor is the owner and manager of the business, and cannot be his or her own employee.
- A corporation allows the business to attract and motivate employees and management by allowing for partial ownership of the corporation.
- Rates of taxation within the corporation are generally lower than personal rates.
- It is possible for a corporation to merge or amalgamate with another corporation.
- Corporations also have perpetual existence which means that shareholders, officers and directors can come and go without affecting the distinct legal personality of the corporation.
Charitable organizations often incorporate as not-for-profit corporations to enjoy similar advantages.
Some of the disadvantages of incorporation include the initial higher cost of incorporating a business relative to the lower cost of starting a sole proprietorship or a partnership. There are also on-going costs associated with annual filings, tax and record keeping requirements. Many businesses are willing to bear these costs in order to have the advantages of limited liability and separate personality.