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Advantages of Incorporation.For small businessmen, there are many good reasons to consider setting up a corporation or limited liability corporation (LLC). None are as important as protecting one's personal assets from the liability of creditors.
Once a corporation or LLC is set up and provided it is maintained properly, the debts of the business are not treated as debts of individual partners. Unless they separately agree to do so, the individual owners of the corporation (known as Ashareholders) have no liability for the debts of the corporation. For example, a corporation can go bankrupt without affecting the solvency of its shareholders.
The requirements of filing a corporation are simple in California. It requires corporate documents to be drawn up, generally by a lawyer. Articles of Incorporation are filed with the California Secretary of State. Certain legal documents must be kept on an ongoing basis, such as shareholders meeting minutes, records of share transactions, bylaws.
For most small businesses, there are no additional taxes caused by incorporation. Small businesses typically qualify for S-corporation status, and its income is treated as the income of its shareholders just like a sole proprietorship.
This summary simply states general guidelines and is not intended to serve as legal advice. In establishing a business, or making decisions regarding the form of an existing business, it is advisable to seek out counsel from a legal, tax or accounting professional who considers the facts of your particular case.