Lesson 2: Type of Business
An incorporated small business
The second kind of entity that is allowed to carry out business activities is a company. Companies are created by incorporation, which means that you give the company a body. The reason for this terminology is that, by incorporating, you are creating a new entity which is completely separate from you, i.e. giving it a "body" or a separate existence.
Companies, once created, have many of the same rights and privileges as individuals and are in fact called "legal persons", i.e. persons created by legal means instead of by natural ones. But, not being individuals, companies cannot automatically do anything that is not illegal - they can only do things which they are specifically allowed to do under the laws creating companies and under their incorporation documents.
Companies can usually buy and sell legal products and services, enter into contracts, hire employees and generally conduct business. They can't vote in most elections, do military service, marry, or run for public office. Their purpose is really to provide a stable business structure completely independent of their founder, owner, shareholders or controlling individuals. All of these can change without affecting the business in the slightest way.
When incorporating a company, you must choose a unique name. This means that you have to do a name search to make sure that there is no other company using the name you want. Such a search is an additional expense and, if you don't need a particular name and want to save this money, you can opt for a "numbered" company. This means no name is registered and a running number is assigned to the company to be its unique identification. For your small business, it generally doesn't make sense to go to the expense of incorporating and not incorporate under the name of the business.
Because the company is a separate entity from you, its income, expenses and taxes are also separate, However, since you control the company, you can arrange its finances and your own so that a minimum of taxes have to be paid.
Because it is a separate entity, it is also liable for its own actions which are separate from your actions. That way, if an employee of the company makes a mistake, he and the company are responsible. You as owner of the company are not as long as you didn't contribute to the mistake.
Finally, since the company is completely separate with its own customers, suppliers etc., it is easier to assign a value to the company and to sell it than it is to sell a registered business. Where, for a registered business you will have to carefully separate out the business interests from your personal ones, for a company the separation is clear and a buyer can take it over without any problems.
