A corporation can be defined as distinct legal business created under the state regulations by a sole owner or a team of owners, acting as initial shareholders. The hallmark characteristic of the corporation is that it’s legally independent of its creators. In case the corporation gets insolvent, the shareholders & owners won’t be liable over their very equity investments made in that corporation. Shareholders here will elect a Directorial Board for effective management of the corporation & the board further appoints executives to handle regular business operations. The article here is a short note on the advantages and disadvantages of a corporation.
Limited liability is one of the major advantages of a corporation. As the corporation is some distinct and separate legal entity, the corporation owners would be indebted only till their interest limit in that corporation. It implies the corporation creditors have no right to run for the stockholders’ personal assets while settling the debts & obligations of that corporation. Then, a corporation is easy on sell & transfer. In case the corporation stock is traded publicly, the investors and owners could sell the ownership interest quickly via stockbrokers. If the corporation stock isn’t traded publicly, stock certificate could be either transferred or else assigned to some other owner. Another important advantage of forming corporation is continuity. Unlike the sole proprietorship format, in case of corporation, a stockholder’s death won’t terminate the organization. It would still continue to exist as a distinct & separate legal entity where the shares would be transferred to other owners.
One of the most significant cons if establishing a corporation is that the organization has to abide by a great list of complicated regulations & reportorial requirements. Another problem of establishing a corporation is double taxation. The possibilities of dual taxation arise from the dividends paid by the corporation. A corporation would be taxed on the basis of its income. In case a corporation distributes a portion of its net income amidst stockholders as the dividend, this divided would be taxed on personal IT returns of the stockholders. Besides, you must know that limited liability might weaken the credit capacity when the corporation is passing through a bad financial situation.