The owners need to decide which form of business will best cult their deeds. However, when forming a corporation certain advantages exist that sole proprietors and partnerships do not have. Some of these advantages include being a separate legal entity with limited liability, ease of generating capital and transferring ownership, lack of mutual agency and continuous existence to name a few. By having a business with a separate legal entity, the business is treated similar to how a person is treated.
The business can enter into contracts, own property, sue and be sued in addition to hiring and firing employees. Since the corporation is a operate legal entity, any creditors that take action against the corporation can only satisfy claims against the personal property that the corporation holds, not the personal property of the owners. Furthermore, because the corporation Is a legal entity, the company Is not affected by the death, Incapacity, or withdrawal of an owner (Needles, Powers and Cross, 2005). Ending agency looks at the credit history and rating of the corporation, not the owners, when making lending decisions. The corporation can issue stocks to generate capital resulting in many various owners in the company. Stockholders can buy and ell shares easily without affecting the operations of the corporation. Additionally, because the corporation has a lack of mutual agency, none of the stockholders can act as an owner by entering the corporation into a contract. Disadvantages of forming a Corporation corporation offers unique advantages and disadvantages.
Just as there are advantages in forming a corporation there are also disadvantages. These characteristics must be considered very carefully before launching any new business. Some disadvantages of forming a corporation are: 1 . Corporation management-?separation of ownership and management; the operation of ownership and management prevents owners from having an active role in managing the company, in which some owners like to have (Wesleyan, Skies, Kismet, 2005). 2. Government regulations; these regulations are put into place for the intended protection of the owners of the corporation.
The government regulations protection is required since most stockholders do not involve themselves in the daily management of the company. There are numerous regulations and requirements that must be upheld in a corporation. Regulations such as: State laws that generally set the acquirement for issuing stock, the distribution of earnings permitted to stockholders, and the effects of retiring stock, and the Federal securities laws that are govern for the sale of capital stock to the general public (Wesleyan, Skies, Kismet, 2005). 3.
Additional Taxes; also one of the many disadvantages for a corporation due to the potential of double taxation of corporate earnings. After a corporation pays federal, state, and local income taxes on its profits, its owners (stockholders) also pay personal taxes on any distributions of those profits they receive from the corporation in the form of stock dividends. Unlike many others, a corporation must pay federal and state income taxes as a separate legal entity, these taxes are substantial: They can amount to more than 40 percent of taxable income (Wesleyan, Skies, Kismet, 2005).
