When we hear the word “corporation”, most of us imagine this massive industrial empire the size of a nation, much more often more than we imagine a small business. The truth is that corporations don’t have to be big at all and in fact, most of them are not.
Corporations are legal entities that exist on their own and they can be running revenues of billions of dollars or just a few thousand and will impose certain legal and tax rules on its owners, who are also called shareholders. A corporation can be as large as Coca-Cola Inc. or as small as one person, but one fundamental legal characteristic of a corporation, no matter the size, is that it’s a separate, legal entity from its owners and the shareholders of the corporation are normally protected from personal liability for business debts.
In a corporation the shareholders can come and go and the business will continue to exist in spite of any changes in the corporation’s ownership. I said “normally” protected from personal liability from business debt, because there can be exceptions. For example, when corporate owners ignore corporate formalities and treat a corporation like an unincorporated business like a partnership or a sole proprietorship, a court may ignore the existence of a corporation and rule that the owners are personally liable for business debts and liabilities.
To avoid this from happening it’s important for the corporate owners not to allow the legal boundary between the corporation and its individual owners to grow fuzzy. As a corporate business owner you need to scrupulously respect the corporate formalities by holding and documenting shareholder and directors’ meetings, by issuing stock certificates and maintaining the corporate bank accounts strictly separate from all personal funds. It is important to remember that having a limited personal liability, even in a corporation, won’t protect you from losing the investment that you initially made in the business, or made along the way.
This is why certain business insurance is a very important source of protection against catastrophes, such as lawsuits, fires, theft, etc. We will talk about insurance in the following sections however, please keep in mind that if you find you just can’t pay your normal business bills and debts, insurance will not help you. If you are unable to pay your business bills and debts, having a corporation will protect your personal assets but not the business itself.
Opening a corporation is much more complex than with the other business structures. It will take more time and more money, and normally an attorney will have to draw the articles of Incorporation which will need to be filed, just like in the case of an LLC, with the Secretary of State department in the state where your company resides.
The tax benefits of a corporation are numerous, and the corporate tax laws are complex, especially because the corporation exists as a separate legal entity from its owners. That’s why, in the case of a corporation, you will more than likely have a CPA or another tax professional actually prepare your tax returns. If you are planning on starting this type of entity for your coaching business, please make sure that you consult both a lawyer and an accountant, to determine what kind of corporation would be best for your needs.
Please, keep in mind that each country, each state and city can have very different laws, therefore what applies in one place, will not always apply everywhere else. That’s why you need to do your homework before you embark on the corporate journey.
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Joeel & Nataile are co-founders of Transformation Academy®, where they train leading-edge entrepreneurs, leaders and life coaches how to master their mindset and create a purpose-driven business. They have started more than a dozen businesses, and trained over 500,000 coaches from 200_ countries and territories. Joeel is a former psychology professor with a Master’s Degree in Counseling and Education is currently completing his dissertation on eudaemonic happiness for a Ph.D. in Psychology.