Incorporation is the process of either starting a business as a corporation or converting an existing business into a corporation. The reason that not all companies are corporations is because it is not necessarily the best structure for everyone. However, the corporate structure does have certain benefits intrinsic to it, and it could possibly be the best fit for your situation, depending on a number of factors.
Financing Growth
If you currently are operating as a limited liability company (LLC), partnership or sole proprietorship, you may be in a situation in which you have plans for rapid growth, but you lack the funds to finance this growth. One way of quickly raising a large sum of capital for growth would be by incorporating. This allows a number of individuals to purchase stock in the company and thus contribute to company funds. Once they do so, you can finance your new growth and potentially cause an exponential growth of revenue. Even though incorporating requires you to share profits with the stockholders, it can result in a higher personal income for you in the end.
Reapportioning Responsibility
In an LLC or partnership, all members usually take part in the daily operations of the business, unless they are limited partners. In a corporation, being a stockholder does not mean that you need to take part in the company's actual business dealings. In fact, for most large corporations, shareholders gather only for an annual shareholders' meeting, after which the elected directors take care of the actual management of the company. Someone can own part of a corporation without ever meeting the people who actually run it.
Reapportioning Ownership
In the United States, owners of C Corporations (but not S Corporations) do not even need to be citizens or residents of the United States; the company may be headquartered domestically, but its shareholders can live abroad. A C Corporation is also flexible in the total number of shareholders that can own stock: a single shareholder can own the entire company, or shareholders can number in the thousands. Likewise, this far-off ownership is also easily transferable. Stocks in publicly traded companies can be easily traded on the stock market; some investors earn their living by repeatedly buying and selling stocks from various companies without ever having any dealings with the inner workings of those companies.
Differentiating Between Owners
In a C Corporation, companies also may offer different types of stock. The two basic categories of stock are common and preferred. While both types of stock bring income to shareholders in the form of dividends, preferred stock is different in that it accords certain privileges to shareholders. Depending on the situation, holding preferred stock may mean that you are guaranteed a certain value of dividend, while dividends for common stocks can vacillate according to profits. Also, if the corporation is liquidated, preferred shareholders receive payment before common shareholders do. This ability to differentiate between owners is what helps companies attract investors of preferred stock.
