The business sector is like a maze and entrepreneurs must overcome several levels to reach the final destination of becoming a business tycoon. Every entrepreneur longs to convert his small business unit in a multinational corporation. For this the unit has to attain the highest quality standards, maintain highest level of professionalism and constantly be in the pursuit of growth, development and expansion. When a business unit is able to satisfy all these criteria the entrepreneur can think of converting it into a corporation or indulge in small business incorporation.

Defining Incorporation

Usually all business firms are categorized under categories of sole proprietorship, partnership firm and corporation.

In a sole proprietorship firm there is only one entrepreneur who controls the firm and he is solely responsible for the functioning, administration, liabilities, profits and losses. Usually, in this category there is not much difference between the entrepreneurs personal income and his business income.

In a partnership firm there are two or more than two people who own the business unit jointly. The rest of the specifications and terms are like those of the unit under a sole proprietorship.

A corporation is the highest level or status that a business unit can attain. When a business unit attains a certain size and magnitude in the market, it can become a corporation. A corporation is a complex process and involves creating a legal entity. When a firm becomes a corporation it receives a charter from the central or the state government. According to this charter, the assets, liabilities, rights and privileges are not associated with the owners of the firm.

How to go about Incorporation

There is a specific process that a small business unit must carry out in order to become a corporation. Usually, entrepreneurs take the help of professional attorneys for helping them in this respect. However, with innumerable websites available on business incorporation even an attorney is not required.

The process of small business incorporation includes the following steps:

1) The entrepreneur needs to file for incorporation of his firm with the government authorities. The entrepreneurs must ensure that they retain the name of their company and also that the name is not repeated. A unit that is incorporated cannot have a name that has been used by any other corporation. The unit also needs to add the terms corporation, company, incorporated or limited after its name. This signifies its incorporation and defines its legal entity.

2) When the unit proposes to become a corporation it must concentrate on having an independent finance department in order to take care of the accounts of the company.

3) The process also includes assigning various roles to every owner of the firm. In the course of the process, there is a preincorporation agreement that states the various responsibilities that every owner would shoulder when the firm becomes a corporation.

4) The process also includes preparing legal documents that take care of issues like inventory purchases, lease agreements and other major issues.

5) The process of small business incorporation also includes acceptance of corporate bylaws. These corporate bylaws can be termed as the underlying guidelines for the working of the corporation. The firms can initially adopt the conventional set of corporate bylaws and then modify them according to their requirements.

Gains of Incorporation

When a small business firm becomes a large corporation it is able to enjoy several benefits and perks. Some of the major gains of small business incorporation are as follows:

1) The greatest advantage is to the owners of the company. If they do not want to continue with the corporation and want to disassociate from it then they can do it very easily. They only need to sell their stocks in the market and give up their share in the company. The owners can easily transfer their ownership by selling the stocks held by them to the prospective owners.

2) When a firm becomes a corporation it has a very good opportunity to seek more capital. It is a well-known fact that capital formation is very easy for larger corporations. When a firm becomes a corporation, there is a certain credibility and assurance attached to it. Hence, banks and financial institutions readily provide large credit, which can be used by the corporations for further investment. Large corporations float their shares in the market, which are purchased by several small, medium and large investors. People are ready to invest in a corporation as they are assured of its expansion. More importantly, the status of the corporation ensures that the assets of the shareholders are bound to remain safe even if the firm has some debt problems.

3) In several cases, corporations have to pay lower taxes as compared to the normal business units. Corporations can indulge in various schemes in order to save tax expenditure. They can invest in pension schemes and in the various fringe benefits in order to evade the tax loop. Such investments by the corporations are considered as tax-deductible expenses and hence they are imposed with lower tax rates. Even the entrepreneurs can easily adjust their own salaries in the form of expenditures of the corporation and therefore show it as tax obligation.

4) When a firm becomes a corporation, the owners are liable only to the extent of the shares or stocks that they hold in the corporation. Also, in case of a lawsuit, the personal assets of the owner cannot be considered and legal action can cover only the corporation. This is possible because, the corporation is considered as an independent legal entity and is supposed to be distinct from its owners.

Incorporation Control

The control of the corporation depends solely upon the stocks and shares that every individual holds. If the corporation is private the shares are held by a select few individuals, normally the owners who control the entire company. If the corporation takes on the mantle of a public company then even the common public can hold its shares and have a say in the running of the firm. The accepted norm is that the shareholders appoint a board of directors for the corporation and this board controls the management and administrations of the company completely.

The conversion of a small business firm into a corporation is a big step and has far-reaching implications. The supreme level in this maze is that of Multinational Corporation. This implies that the corporation is active not just in one territorial entity but also in different countries all over the world.