Question

• Please describe the differences between the two types of corporations.
• Include a pro and con chart that describes the advantages and disadvantages of the two forms of corporations.
• Discuss why you believe to prefer one form of a corporation over the other.

Answer 1

Below are the two types of corporations:

1. General corporations: this type is the most common structure This is of the corporation. The general corporation is the separate legal entity that is acquired by stockholders. It may have an unlimited number of stockholders as it has the nature of separate legal and needs to be protected from different creditors at times. A shareholder is only liable to the investment he has made in the corporation, not beyond that.

2. 'S' corporation: 'S' corporation is one of the most desired types of corporation meant for mainly corporate tax purposes. This type of corporation is a special tax designation applied and permitted by IRS to the corporations that are already formed. All S Corporations shareholders must be citizens of the United States. An outsider cannot be the shareholders. It issues only one class of stock and not more than 25 percent of the gross corporate income must derive from passive income.

Pros and cons are as follow:

-general corporation

Pros are: in this type, Owners’ individual or personal assets are preserved from business liability. Thus, this firm has longer life beyond the death of the holders. It also holds the tax free benefits like insurance, travel, and retirement plan reductions and many more.

Cons of the general corporation are: this type of corporation is quite expensive to form even than the proprietorship or partnerships. It carries a lot of legal formality with state and federal rules and regulations.

Pros of 'S' corporation are: it protects the personal assets of the shareholder. It has the pass-through taxation benefit which means it doesn't have to pay federal taxes. Ownership can be freely transferred without accelerating adverse tax effects.

Cons of 'S' corporation are: it has ongoing and formation expenses such as a first filling article of incorporation and other procedures. Mistakes in the consent, tax filing, ownership can automatically lead to the canceling of 'S' corporation.

I would prefer a general corporation firstly as it is quite easy to formulate or establish. It doesn't need more expenses to establish and doesn't have consequences either way. 'S' corporation is a bit difficult to create because of the difficult formation structure. It also has quite more liabilities than the general corporation.

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