What is an advantage of organizing a business as a corporation? Before discussing the advantages and disadvantages of a corporation, we must first understand what makes up a corporation. The simple definition of a corporation is a legal business entity that exchanges ownership of a company , also known as stock , through shares.
Whether private or public, a corporation has investors and it must operate in the best interest of those investors at all times. Thus, a corporation is a group of people collectively serving as one legal entity and pursuing one goal:. See full list on upcounsel. When it comes to deciding on a business entity, there are several benefits to choosing the corporation designation.
One of the most important benefits to the corporation is that, in most cases, the owners are not personally liable for any debt or legal judgements associated with the corporation. Another advantage to the corporation designation. Forming a corporation does have disadvantages. If you want to form a corporation , it will require investing more money and time than if you went with another business entity. You will need to file the appropriate registration, fulfill capital requirements, and formally list your corporate directors among other things.
Additionally, there are legal requirements and annual documentation that must be submitted. Because there are many government agencies that monitor corporations, fulfilling the p. An interesting note about corporations is that as ownership dilutes it can become difficult for owners to provide insight or direction. As ownership spreads out and shareholders increase, a board of directors is often chosen to make decisions for the entire corporation. The board of directors are also t. A private corporation has a centralized group of investors that have limited options for transferring or selling their shares.
Corporations can choose to be privately-held or publicly traded. Because it is privately-hel a shareholder cannot sell their shares in an open marketplace to the general public. To become a public company, one must regist.
Its life can come to an end only when the Board of Directors and the Executive team decide to do so. First of all, this legal entity offers liability protection for its owners. Secondly, tax on corporate profits is lower compared to personal income tax. The corporate form of organization presents some advantages for Tom and Tim. The biggest advantage for Tom and Tim is the limited liability that a corporation provides.
Sole proprietorship and general partnership offer passed-through taxation, but some of the advantages below are not provided by these business types. Low tax rates: The C corporation is a niche choice for small business. It allows a non-PSC business to accumulate capital at low tax rates for funding accounts receivable , inventory , and fixed assets.