Advantages and Disadvantages of a Corporation
A corporation has advantages and disadvantages.
Advantages:
- Limited liability
- Easy transfer of ownership
- Business continuity
- Access to capital
Disadvantages:
- Expensive setup
- Taxes on profits
- Legal formalities
Limited Personal Liability and Set Up Costs
Corporations allow owners limited personal liability. If sued, shareholders are not personally responsible for debts. Limited liability protection is a reason to incorporate. Legal formalities and paperwork make set up expensive and time-consuming.
Corporations pay taxes on earnings after expenses. They tend to be more heavily taxed than other businesses.
Taxation and Administrative Processes
Corporations have disadvantages like double taxation, expensive setup, and burdensome administrative work. Income is taxed at the corporate level, and dividends distributed to shareholders are taxed again.
The primary benefit of a corporation is separating personal liability from the business. If liquidated, shareholders avoid losses exceeding their investments.