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Lastly, the filing duration and fees mentioned are based from personal experience. If you’ve recently registered a
corporation in the country and have a different experience than what I’ve written above, then please share it
below as a comment so I may add it here. Thank you.
What is a Corporation?
Our definition earlier states that a Corporation is, “A separate, legal entity guided by a group of officers known
as the board of directors.”
To fully grasp its meaning, we have to understand what “legal entity” means first. From the same site:
A legal entity has legal capacity to enter into agreements or contracts, assume obligations, incur and pay debts,
sue and be sued in its own right, and to be held responsible for its actions.
That last line made me chuckle. “Be held responsible for its actions”.
It almost sounds like “legal entity” is an actual person.
But if you think about it, it actually does make sense to compare a corporation to an actual person to better
understand its meaning. Why?
Because this line of thought gives us a glimpse of why corporations are created in the first place: Limited
Liability.
Put simply, “Limited Liability” states that the owners and shareholders of the corporation are not responsible for
all its debts if the company fails. The company itself, as a legal entity, is liable for the rest.
It’s as if there’s another person who can be held liable in the event the business goes bankrupt.
It allows shareholders to protect their personal assets in the event that the business fails. Or if somebody sues the
company, all damages will be limited to the assets that are within the company. The suing party can’t go after the
shareholders’ personal assets like their cars, homes, and other belongings.
The same cannot be said for a sole-proprietorship type of business because it does not separate the business
entity from its owner. In the event the company gets sued or goes into debt, the owner is responsible for it. The
creditors or suing party can go after the owner’s personal assets.
Which is why while it’s more costly and complicated to set-up, bigger businesses choose to establish a
corporation in order to have this kind of protection. Let’s take a closer look at the Pros and Cons of running a
corporation:
Pros of a Corporation:
Risk and liability is limited to the corporation.
Owners are not liable themselves.
Founders can raise capital through issuance of stocks to shareholders
Ownership can be transferred to different owners
Existence of a corporation has no limits
Acting as a legal entity means it can take legal actions like person
A board of directors handles management of the corporation
Cons of a Corporation:
More expensive to set up versus single proprietorship
Requires more legal paperwork to accomplish
Operating costs are higher
Taxes incurred are higher
Subject to more Government requirements and laws