Platt Perspective on Business and Technology

Consulting assignment life cycle 19: incorporation, partnerships and related legal mechanisms 1

Posted in career development, consulting, job search and career development by Timothy Platt on June 20, 2012

This is my nineteenth installment on consulting and the consulting assignment life cycle (see my Guide to Effective Job Search and Career Development – 2, postings 225-242 for parts 1-18.) I have in more recent installments, been discussing consulting as a business (see Part 17 and Part 18.) And I continue that here with at least a starter discussion of business incorporation, and personal liability limitation and other factors that arise when this is considered.

The most important general points I could raise here as to incorporation and corporations in general are that:

• Incorporation is not simply a legal formality that costs filing and related fees.
• Incorporation as a process also serves to provide personal liability protection and indemnification from a business’ officers and owners when functioning as such and while working on behalf of the incorporated organization. Protection of personal assets is in fact one of the principle reasons for which businesses and particularly small ones are incorporated and this can be of real significance for consulting businesses, and for reasons that I will delve into in more detail later in this series after outlining some of the basic factors and issues going into incorporation per se.
• Incorporation facilitates greater ease of transfer of ownership when and as that might be desired.
• In the United States and a number of other countries corporations can be set up so as to facilitate setting up retirement funds and other owner and/or employee benefits systems.
• Corporations are also often taxed at lower rates than are individuals. Depending on where a business is incorporated, this can affect tax liabilities and maximum tax rates applicable and in a wide range of ways. A good tax accountant can offer more specific advice for these issues.
• Corporations can raise funds through the sale of stock, and depending on the classes and types of stock issued, investors might or might not hold voting rights on business decisions made. This set of issues, I add, has become more complicated and with more fundraising options with the advent of crowd funding. Here, incorporation can be taken as a positive indicator as to the merits of a potential crowd funding investment with a business, as it demonstrates through proactive decision and follow through on the part of its founders and owners that they are trying to build for longer term stability and success.
• Corporations can be set up to be durable in the face of changing owners, shareholders and other individual stakeholders.
• Corporations can set up separate lines of credit, independent from and separately rated from that of any individual owner.
• I add as a separate point here that incorporation is an area of business development where professional legal advice can be both important and cost-effective.

Picking up on that last bullet point:

• It can make a big difference where you incorporate as your jurisdiction of incorporation can significantly affect your up-front costs for this, your tax liabilities and other fees due, and other rights and options as touched upon in the above list.
• It can be important how you incorporate and the type of incorporation business that you set up too, and there are a great many types of corporation and other limited liability company structures to choose from in determining which would be best for your purposes and circumstances.
• Where you incorporate can determine your primary business address and this can have significant ongoing consequences.
• A good attorney can also provide valuable insight and advice when determining who is to take what officer positions: chief executive officer, chief financial officer and so on that incorporation can specify as required. And an experienced attorney can also provide insight as to what corporate officer participation means as far as their legal responsibilities are to the business.

I stated that I would come back to the issues of liability protection as provided through incorporation, and with a specific focus on how this applies to consulting businesses, and I will turn to that in my next series installment. Meanwhile, you can find this and related postings at my Guide to Effective Job Search and Career Development – 2. I have also posted extensively on jobs and careers-related topics in my first Guide directory page on Job Search and Career Development.

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