The Corporation
BUSINESS
A corporation is the most formal business entity. It is a legal entity that is separate from its owners (shareholders). In the eyes of the law, a corporation is a legal person.
The shareholders elect a Board of Directors to operate the corporation. The directors, in turn, appoint officers to manage the day-to-day operations and make high-level decisions for the company.
Advantages of a corporation include:
Corporations have an unlimited life span.
Shares may be transferred, purchased, and sold.
Owners are protected from personal liability for the company’s obligations and debts.
Corporations have several options for raising capital.
Corporations are the preferred business entity for public companies.
Disadvantages of a corporation include:
Corporations are subject to double taxation.
A corporation must file a corporate tax return and pay taxes based on its profits based on the corporate tax rate.
Distributions to shareholders are taxed at the shareholder’s personal tax rate.Setting up and managing a corporation is more difficult and expensive.
Corporations require annual meetings, minutes of meetings, and other formalities.
The periodic filings and annual fees for corporations can be burdensome and costly for some businesses.
Much less flexibility because of regulations governing corporations.