One of the touted advantages of owning a corporation is the ease in transferring shares. In many cases, this assumed benefit is simply wrong.
Transfer Shares
According to experts, using a corporation has one bid advantage over other entities. The advantage is the ability to freely transfer shares without impacting the business or viability of the corporate structure. Consider the following example.
If I own a 60 percent interest in a general partnership, I cant just sell it to someone else. In most states, the transfer of more than 50 percent of an interest in a partnership automatically terminates it. With a corporation, however, there is no such prohibition.
Instead, I am free to transfer shares without restriction and the business just purrs along without any interruption.
As with many assumptions, the free transferability assumption runs into problems in the real world. This is particularly true if the corporation has entered into contracts with other large companies.
Accidentally Terminating Contracts
State laws govern the formation and running of most business entities. These laws, however, do not trump general contract...
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