Incorporation
Incorporation is the formation of a new corporation. The corporation may be a business, a nonprofit organization, a sports club, or a local government of a new city or town.
Some legal benefits come with incorporation. One significant legal benefit is the protection of personal assets against the claims of creditors and lawsuits. Sole proprietors and general partners in a partnership are personally and jointly responsible for all the business's legal liability (LL), such as loans, accounts payable, and legal judgments. In a corporation, however, shareholders, directors, and officers are not liable for the company's debts and obligations. They are limited in liability to the amount they have invested in the corporation. For example, if a shareholder purchased $100 in stock, at most, $100 can be recovered. On the other hand, a corporation (Corp.) or a limited liability company (LLC) may hold assets such as real estate, cars, or boats. These assets may be protected if a corporation shareholder is personally involved in a lawsuit or bankruptcy. A creditor of a shareholder of a Corp. or LLC cannot seize the company's assets. However, the creditor may seize ownership shares in the corporation, as they are considered personal assets.
In the United States, corporations can sometimes be taxed at a lower rate than individuals. Also, corporations can own shares in other corporations and receive corporate dividends 80% tax-free. There are no limits on the number of losses a corporation may carry to subsequent tax years. On the other hand, a sole proprietorship cannot claim a capital loss greater than $3,000 unless the owner has offset capital gains.
A corporation is capable of continuing indefinitely. Its existence is not affected by the death of the corporation's shareholders, directors, or officers. Ownership in a Corp. or LLC is easily transferable to others, either in whole or part. Some state laws are particularly corporate-friendly. For example, the transfer of ownership in a corporation incorporated in US-DE must not be filed or recorded.
Pierre R. Loiseaux. (1972). Liability of Corporate Shares to Legal Process. Duke Law Journal. Number 5. С. 947. Durham: Duke University School of Law.
Helpful Facts to Know About Capital Gains and Losses. Internal Revenue Service | An official website of the United States government. Retrieved from: https://www.irs.gov/newsroom/helpful-facts-to-know-about-capital-gains-and-losses