What are the Advantages of Incorporation?
One of the primary advantages of incorporation is the limited liability the corporate entity affords its shareholders. Typically, shareholders and directors are not liable for the debts and obligations of the corporation; thus, creditors will not come knocking at the door of a shareholder or director to pay debts of the corporation. In a partnership or sole proprietorship the owner's personal assets may be used to pay debts of the business. Maintaining the limited liability of a corporation requires that the shareholders and directors follow all the rules of governance, including holding annual meetings and maintaining meeting minutes, which is why we offer corporate forms disks and corporate kits as part of our complete incorporation package.
Other Advantages:
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A corporation's life is not dependent upon its members. A corporation possesses the feature of unlimited life. If an owner dies or wishes to sell his or her interest, the corporation will continue to exist and do business.
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Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation.
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Ownership of a corporation is easily transferable.
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Capital can be raised more easily through the sale of stock.
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A corporation possesses centralized management.
What are the Disadvantages of Incorporation?
The primary disadvantage to a corporation is double taxation. Profits of a corporation are taxed twice when the profits are distributed to shareholders as dividends. They are taxed first as income to the corporation, then as income to the shareholder. All reasonable business expenses such as salaries are deductions against corporate income and can minimize the double tax. Further, the double tax can be eliminated by making an S corporation election.
Other Disadvantages:
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There is more complexity and expense with forming a corporation.
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There are more extensive record keeping requirements.
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Operating a corporation across state lines often requires the corporation to qualify to do business in the other state.
