Corporations

When we hear the word corporation, we most commonly think of a multinational company with a massive reach, the size of an entire country, rather than a small business. But in reality, corporations don't have to be gigantic companies.

When you consider most corporations, you will realize that they are made up of small corporations. Corporations comprise legal entities in their own right, and may have revenues in the billions of dollars. Or it could have revenues of a few thousand dollars. A corporation could be as massive as Apple or as small as a single person.

What separates corporations from other types of businesses is not size. It is that they are separate legal entities from their owners and shareholders, which keeps them protected from any personal liability for lawsuits or debts.

Characteristics of corporations

Although in most cases the shareholders and owners of the corporation are exempt from personal liability, there may be some exceptions. In the event that, for example, some of the owners or shareholders use the corporation as a partnership or sole proprietorship, any judge could disregard the corporate structure and decide that they are personally liable.

To prevent something like this from happening, the owners and shareholders must be careful not to cross the legal boundary between themselves and the corporation.

One of the requirements that must be strictly followed when establishing a corporation is to respect the corporate bureaucracy of the corporation. Meetings between shareholders and management must be held on a regular basis. In addition, this entire process must be properly documented.

Another guideline to keep in mind is that the bank accounts of the owners and shareholders cannot be mixed with those of the corporation.

Although in corporations the personal liability of its owners is assured, this does not mean that they cannot lose their initial investments or those that were made later. This is why business insurance is so important to keep you protected in these cases. You must keep in mind that the insurance will not help you in case of normal business expenses.

Advantages and disadvantages of corporations

Corporations are not infallible, and forming one has its advantages and disadvantages. Here are some of them:

• Advantages: A corporation is ideal for the entrepreneur to protect his personal resources, although this does not mean that the company itself is protected. Corporations have many tax benefits in most countries, facilitated by governments to stimulate the economy. In corporations, there can be any kind of changes in their owners and shareholders, and they are not affected by this. In case of eventualities, corporations can transfer ownership with relative ease, taking into account some restrictions depending on the structure of the corporation.
• Disadvanta