Benefits of Forming a Corporation
Corporations and Liability Protection:
- Stockholders are not liable for corporate debts.
- Shareholders do not risk losing personal assets due to company debts.
- Corporations provide liability protection by being separate legal entities.
Financial Advantages of a Corporation:
- A corporation can deduct various expenses such as employee salaries, benefits, and bonuses.
- It can also reduce taxable income by deducting insurance premiums, expenses, debts, and taxes.
Comparison of Business Structures
Ownership Structures:
- A corporation is owned by shareholders who profit from company gains.
- A partnership is owned by two or more individuals who divide profits.
- A sole proprietorship is owned by one person responsible for all losses and profits.
Differences in Selling Entities:
- A sole proprietorship or partnership requires individual transfer of assets, licenses, and permits during a sale.
- New bank accounts and tax identification numbers are needed in the case of selling a sole proprietorship or partnership.
Advantages of a Corporation Over Sole Proprietorship
Liability Protection and Cost Considerations:
- Personal assets of shareholders are protected from company debts.
- Corporations offer liability protection as separate legal entities.
- However, setting up and running a corporation is costlier compared to a sole proprietorship or partnership.