When a business is incorporated, it means that the owners of a business (shareholders) have established themselves and their business as separate legal entities by filing Articles of Incorporation paperwork with their state.
In other words, the business’ finances and the business owners’ personal finances are usually considered separate when the business is incorporated, so the shareholders’ personal assets are protected if the business fails and business creditors decide to take legal action to square away the company’s debts.
However, there are certain situations where the shareholders might be responsible for the company’s debts even if they are incorporated. For example, if a shareholder signs a Personal Guarantee on a corporate loan as a debtor or guarantor, they may be obligated to take over the loan payments if the business goes under .
Shareholders’ and Directors’ Meetings
After company owners successfully file their Articles of Incorporation paperwork with their state and become a corporation, they must hold regular shareholder and director meetings and record any resolutions or decisions made in a company meeting minutes book.
The first shareholder and director meetings that take place after the Articles of Incorporation documents have been filed should be recorded using Shareholders’ Organizational Meeting and Directors’ Organizational Meeting documents respectively.
Corporate Bank Records, Taxes, and Stocks
In order to enjoy the benefits of an incorporated company, the owners of the company must keep company and personal banking records separate.
With regards to taxes, a corporation is taxed depending on what type of corporation it is. For instance, a subchapter c corporation (often referred to as simply a “corporation”) is the most common corporation model and is used by most companies in the United States.
With this model, the corporation must pay taxes on its profits, while shareholders are responsible for paying personal income tax on salaries, bonuses, and/or dividends that are paid to them.
An incorporated business can also issue or sell stock (sometimes called “shares”) to employees and investors as the company owners see fit. This may be done to give employees incentive to work there or to raise funds for the company.
Incorporating a Business
Incorporating a business offers many different benefits to the owners of the company, including the ability to split personal and business financial liability. Incorporation is a popular choice with business owners who want to grow their business while limiting personal financial risk.