Question

In: Accounting

Identify at least two advantages and disadvantages of forming a corporation. Provide at least one way...

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.

Solutions

Expert Solution

Answer:

Advantages of forming a corporation:

a)Continuity life:

Corporation type of business ensures continuous life of operations irrespective of the partners retirement,death till the business is insolvent.It is one of the strategic advantages that a corporation has.

b)Seperate legal entity:

corporation stockholders liability is limited and in partnership and sole proprietorship is unlimited.In corporation type stockholders are not held liable for the debts of the corporation.

Disadvantages:

a)Double Taxation:

Corporation has a disadvantage of paying taxes twice of their profitable operations. This is the major disadvantage that a corporation has.

b)Ownership and Management are seperated:

Ownership and management are seperated which is the main characteristic of the organised corporations is the major disadvantage too for the corporations because this makes lack of management interference in the operational and financial activities.

Ways to overcome disadvantages:

  • Corporation form of business has to comply with the legal requirements.
  • Corpoaration taxes has to be reduced by adopting various measures.
  • Ownership and management has to maintain healthy relationship thereby leading to profits.
  • Relationship can be developed by conducting meetings and letting them to know the operations regularly.

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