A corporation is a formal business structure with less personal liability for owners. However, running a corporation involves expensive, complicated rules and processes requiring stakeholder reporting and record-keeping to ensure proper compliance.
Types of Corporations
There are several corporation types:
- C corporations;
- S corporations;
- B corporations;
- Closed corporations;
- Nonprofit corporations.
Each type has benefits and disadvantages compared to alternatives like sole proprietorships, partnerships, LLCs, and cooperatives. As a common corporation type, a C corporation can have unlimited shareholders taxed separately. Shareholders also have personal liability protection but face double taxation on dividends.
Disadvantages of Corporations
Other corporation disadvantages apply to shareholders and the corporation. Management separates from shareholders, although this can benefit both. Management acts as shareholder agents, creating possible conflicts when shareholder visions differ from management decisions.
Increasing corporation numbers require analyzing significant advantages and disadvantages. Whether incorporation fits business growth plans or sustaining existing operations determines its suitability. Firms incorporating create separate legal business entities, detached from owners as shareholders. Publicly or privately owned, these corporate bodies differ legally from owners.
Considerations Before Incorporating
Corporations give security and liability protection but take time to process and follow rigid formalities. Some corporations have double taxation. Consider formation advantages/disadvantages when deciding if incorporation suits your business.