Why Incorporate?

why incorporateEven though corporations are an omnipresent part of day-to-day life in the modern world, many people don’t know what a corporation is, or why someone would want to incorporate their business in the first place.

A corporation put simply, is a legal entity that exists independently of the people who own and run it. Due to what is known as “the legal fiction of corporate personhood,” corporations are treated as legal “persons” for a variety of purposes, most significantly for the purposes of legal and financial liability. In other words, when a business loses money or gets sued, it would normally be the business’ owner or owners that are held responsible for paying off the business’ debts or paying for any legal judgments. However, when a business is incorporated, those losses and judgments are generally incurred by the corporation, not the owners, and so the owners generally aren’t held responsible if the company can’t pay for everything and goes bankrupt.

The downside to a corporation, however, is that you need to maintain a strict separation between the corporation’s owner or owners, and the corporation itself. A corporation, for example, should have a separate bank account and separate sets of books, and if there is any transfer of money out of the company, it needs to be for payment for goods or services, or as a loan. You also need to ensure that the corporation engages in certain required activities, such as holding shareholder meetings and meetings of the board of directors. If you don’t meet these requirements, and you get into trouble, a court may “pierce the corporate veil,” and determine that the protection of corporate personhood doesn’t apply.

Starting and running a corporation can be risky, however, and you should contact an attorney with knowledge of all areas of business law to help you make the best business decisions for you. The business attorneys at Blodnick, Fazio & Clark have the experience you need to make your business successful.  If you want assistance in incorporating your business, or you’re interested in learning more about the benefits of incorporation, please call our Nassau County business lawyers at (516) 280-7105, or, for our Suffolk County business lawyers, call (631) 669-6300.

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