Choosing how a business is organized may be one of the toughest decisions and among all other concepts incorporation of a business would be the toughest and wisest one to make. However, for some of the business persons incorporation may not be necessary so each businessperson must assess the benefits and hardships before moving forward towards incorporation. Doing business as a sole proprietorship is a very risky and tough system of business as the person who is doing this work would be entirely responsible for the actions of the company. Incorporation removes the liability from individuals to the corporation by itself. The benefits of incorporation can be summarized into 3Ls, which are Life, Liquidity, and Liability. The detailed summary of benefits of incorporated business in light of these three Ls is stated below:
Incorporating a business is essentially creating a separate person and making the business separate from the owner. As a separate entity, the corporation is independent of the shareholders, owners and the employees. The corporation works properly regardless of what happens to the directors, shareholders or the employees until unless the directors decide to dissolve the company. By incorporating a business, the personal finances of the owner or the partner stays separate from the finances of the corporation. Due to the separation of the finances the corporation works without any disruption. In a sole proprietorship by the unfortunate death of the owner the business gets dissolved regardless of the wishes of the owner.
If at any instant of time due to any certain reasons an owner wants to quit the business the incorporation allows free transferability of the interest from one person to the another regardless of the reasons that why the first owner left. In partnership, the person cannot transfer the personal interests in the business to another without the permission of other partners. If someone does this by going against the will of other partners, then the business automatically gets dissolved. Incorporation allows the individuals of a business entity to transfer their business interest into another without getting permission from the other partners or shareholders. The incorporation of business allows the transferability of the shares from person to another, but the general partnership business does not allow this transfer. Incorporation allows the owner to restrict the transferability of some shares. The incorporation system prevents the minority shareholders from dissolving the business without cause.
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