Establishing a business and making it a success can be a difficult task. There are some crucial steps that you need to take to create a successful business. One has to take care of all these steps with utmost precision. Often, business owners think that the process of incorporation is a daunting task as it both time-consuming and costly. The benefits that entrepreneurs can gain by incorporating their business outweigh the disadvantages. If you don't organize your business as a corporation, then you are missing out on the benefits that can help you stand out in the marketplace. Once you make your mind about converting your business into a corporation, there is no turning back. The next dilemma that faces you is whether to register a new corporation or go for a shelf corporation! Both these methods have their pros and cons. It is time to dive deeper and get a better perspective.
Benefits of having a new Corporation
A corporation is a business organization, and the shareholders are the owners. However, shareholders are not liable to run the corporation. Instead, they appoint a Board of Directors to oversee the activities of their company. In return, the board elects officers like Chief Operating Officer (COO), Chief Executive Officer (CEO), and Chief Financial Officer (CFO) to ensure the smooth functioning of the corporation. The rights and responsibilities of a corporation are similar to those of an individual. Signing contracts, taking loans, acquiring assets, payment of taxes, hiring human resources, suing other firms, and vice versa.
Listed below are the benefits of converting a business into a corporation.
Limited Liability: This is a fascinating concept that works in favor of the owners of the company. Let us see how the idea of limited liability plays itself out in real life. In any corporation, the owners are liable to the amount they have invested in purchasing the shares. If the corporation approaches bankruptcy, the money spent by the shareholders is used to pay back the creditors and lenders. Hence, shareholders can only lose this amount. Also, creditors and lenders have no claim on the personal assets of the owners, so the interest of owners is secure in this business structure.
Easy Availability of Capital: In a corporation, it is easier to raise funds. The total funds that are required get divided into thousands of shares, so the price of each stock is quite less. As a result, people become willing to purchase the shares of a corporation., a total win-win situation for both shareholders as well as the body corporate.
Perpetual existence: A corporation can come to an end only if the board of directors or the officers responsible for its functioning decide so. In case of the unexpected demise of an officeholder, the board can appoint new people to fill up vacant positions, and the long term plans for the growth of a corporation remain intact. Thus, a company's office-bearers can die, but the company lives on.
Smooth transfer of ownership: In a company, the transfer of ownership is not that big an issue. The shares of a corporation are often referred to as "the instruments of ownership" and are easily transferable.
Credibility: The corporate form brings impeccable credibility to a business. C Corps can attract the best talent from the market, which helps in the rapid growth.
Disadvantages of a new corporation
Just like everything else in the world, these new C Corporations have many problems too!
Here is a list of the possible demerits of having a C Corp.
The Complexity of Setup: Setting up a C Corporation can be a very complicated task. The amount of paperwork required is quite extensive, and there are many authorities that you need to take permission. Although most of this process has shifted online, yet it can be very time-consuming
Double the Taxes: As long as your business is a partnership/proprietorship/S Corp, the government taxes your income at the personal level. But as soon as you choose a C Corporation, your taxes double. Firstly, the corporation pays a flat corporate tax on all the profits that it makes. Secondly, the dividends distributed by the corporation are also liable to be taxed in the hands of the shareholders. Due to his drawback, many business owners avoid setting up a C corp. An S Corporation is thus a much better option.
Conflict of Interest: When you convert your business into a corporation, you may end up losing control as you have to hand over decision-making power to the board of directors. There are going to be times when you won't agree with the decisions taken by them. These decisions may not be suitable for the health and the future of the firm. The profits and the image of the firm will undoubtedly take a hit.
Lack of Business Confidentiality: The confidentiality of business is likely to be lost when you convert it into a C corporation. As per the norms set up by the regulatory bodies, you have to present multiple reports to the stakeholders, providing both qualitative as well as quantitative data. There is a likelihood of these falling into the hands of a competitor, as one of the numerous officers may get compromised.
Now, let's have us explore all the merits and demerits of shelf corporations.
Benefits of a Shelf Corporation
Shelf Companies are also known as Aged Corporations for sale as they are registered legally and left on the shelf to age for a potential buyer to acquire them in the future. The age of the company can be of considerable significance to your business.
Saves Time: As mentioned before, a shelf corp is already registered, and it saves you a lot of time that you can spend productively in operational matters. The transfer process of a shelf company from the former owner to you will only take a few hours.
Healthier business and banking relationships: Buying shelf companies with bank accounts can work wonders. You need to create an excellent track record and a strong credit history. These companies can help you to establish better business and banking relationships because vintage is a factor when it comes to gaining the trust of customers, investors, and lenders.
Secure business tenders and contracts: Some tenders and contracts have prerequisites that aged shelf corps help you qualify. Government agencies and other businesses are inclined to offer contracts and tenders to corporations of a certain age. The history of aged shelf corporations helps you out in such scenarios, and thus you can succeed in the government sector.
Establishes longevity and enhances image: The operating history of shelf companies with 80 Paydex scores helps create a sense of durability and enhances your corporate image. The corporate world goes by the saying, "the older, the better." Renowned corporate giants are more likely to engage in business with older companies rather than a brand new one. A shelf company with a multi-year history will always work in your favor.
Disadvantages of a Shelf Corporation
Shelf corporations have some minor defects listed below:
Age only is not enough: If you are purchasing a shelf company with credit only to obtain a handsome loan from the bank, you should reconsider your decision. These days, banks pay closer attention to factors like credit history/rating, and transaction history. An ideal shelf company doesn't have any tax returns, business history, or existing revenues. Hence, you have to create the business history of the corporation, and this does take time and effort.
Beware of the scams: Before purchasing a shelf corporation, there are certain factors that a business owner has to keep in mind. There are plenty of scams in the market, like operators who sell you companies with a bad history. We always insist that you be thorough in your research so that your interests remain secure. In case you come across a shelf company with any form of transaction history, you would do well to back off from the deal. These kinds of transactions can make you liable for unpaid debts or worse, criminal activities like money laundering, smuggling, etc.
As you can see, the demerits of setting up a new corporation outweigh the benefits. On the other hand, if you proceed with the utmost care, the chances of making it large with the help of Texas shelf corporations are much brighter. The need of the hour is smart work, as there are plenty of people out there who can work harder than you. Leveraging California shelf companies for sale can also work wonders. Choosing an aged shelf company from one of the credible suppliers in the industry is the first step towards success, as they assist you through the process. After you buy shelf corporations, you need to work towards creating a good transaction history and credit score for your company. The rewards for your persistence will be better than the efforts you have to put in. We wish you all the best for your future endeavors!
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