Question

Identify at least two advantages and disadvantages of forming a corporation. Provide at least one way that business owners can overcome the disadvantages you identified.

Answer 1

Before discussing the advantages and disadvantges of a corporation, we must first understand what makes up a corporation.The simple definition of corporation is a legal 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 time.Thus, a corporation is a group of people collectively serving as one legal entity and pursuing one goal: to generate the highest net return for its shareholders

Advantages

• Low Risk-:The owners are not personally liable for any debt or legal judgements associated with the corporation.In other,If a company files bankruptcy and doesn't have enough assets to fulfill the obligation, the shareholders will not personally liable for the situation.
• Easily transfer the ownership-:Corporations can transfer ownership by buying or selling its shares.Public corporations have a much easier time than private companies to exchange shares.

Disadvantages

• Double taxation-: Double taxation that happens when dividends are paid to shareholders.Corporate taxes must be paid on the profit at the corporate- level and individual level.

How it over come the issue-: The double taxation can be avoided if your corporation is able to file as an S Corporation,With the IRS(Internal Revenue Service). As an S Corporation, the company itself no longer pays taxes on the profits. Instead, any profit or loss is passed to the stockholders. The stockholders then report their share of the profit/loss on their personal tax returns.

• High volume of paperwork-: When a corporation pays dividends to its shareholders, the company is not allowed to deduct these payments from its income. Because corporations must pay a variety of taxes, and may earn different types of incomes, these companies typically must handle a tremendous volume of paperwork which would not be required with another business entity.

How it over come the issue-: If you need help with the required incorporation paperwork, you may want to hire an attorney. While hiring an attorney is not a requirement for incorporation, having an experienced legal professional on your side can make the process much easier.