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As Modesto corporate Attorneys, we have seen a variety of reasons why people choose to incorporate their business. Below is a brief non-exhaustive list of reasons why people may want to form a corporation for their business.
- Asset Protection: One of the most common reasons people incorporate their business at Ogden Law Firm, PC is to provide asset protection. Generally, a corporation is a separate legal entity existing under authority granted by state law. A corporation has its own identity that is separate and distinct from the people who created it and from its shareholders. Therefore, incorporating your business allows for asset protection.
Even though you have a corporation, there are instances when someone who is injured may sue you personally (called "piercing the corporate veil") because you did not keep proper corporate formalities (such as holding regular meetings, keeping minutes, etc.) or requirements under law. As lawyers who have vast experience in forming and maintaining corporations, we can assist you in ensuring that your corporation maintains the proper formalities and requirements so that your corporate veil is not pierced.
- Debt Protection: Another reason that people form a corporation at Ogden Law Firm, PC is that the corporation is separately responsible for its own debts. Generally, shareholders, directors or officers of the corporation are not legally responsible for corporate liabilities. Thus, if the business takes losses, the corporation is responsible to pay them to the extent of the corporations resources.
- Buy-sell, Estate Planning and Succession Planning: Forming a corporation for your business may help you in your estate and succession planning. For example, shares of a corporation are an excellent vehicle for annual exclusion gifts which transfers value from your estate to your heirs or donees. It does so free of estate and gift tax, and without the necessity of parting with cash or control. Please see our Buy-sell and Succession Planning page for more information.
- Tax Planning: On one hand, there are more favorable and generous tax deductions available to corporations taxed under Subchapter C of the Internal Revenue Code, commonly known as C-Corporations. On the other hand, if you elect to form your corporation as an S-Corporation, it allows pass-through taxation like a partnership. In either case, Ogden Law Firm, PC can assist you in achieving the best tax planning for you and your business.
- Broad Powers: Even though a corporation is a separate legal entity, a corporation has a broad range of powers including the power to contract with people or other corporations, own and convey property, and to sue and be sued.
- Management and Control: Generally, management and control of the corporation is done through the board of directors which are elected by the shareholders. However, practically speaking, when a corporation is small, quite often clients are simultaneously stockholders, directors and officers. In the context of a smaller corporation, this means that the management and control of the company is done by the people who are both shareholders, officers and/or directors.
As you can see, there are a variety of different reasons people choose to incorporate their business. Whether you are thinking about forming a corporation, or have already formed one, there are specific procedural steps that must be followed to ensure that your corporation achieves the intended goals of asset and debt protection. As corporate attorneys in Modesto, we have firsthand experience in ensuring our clients accomplish their intended goals.
If you would like to form a corporation in Modesto or would like representation of an existing corporation in Modesto, contact us and we would be glad to assist you in your corporate needs.