If you are starting a business or are already in the business world, chances are you have heard of a corporation. According to U.S. Small Business Administration it is the resulting legal entity from an incorporation which separates the firm’s assets and income from its owners and investors. As one of the many business types that are available to form, corporations can offer the most safety. Corporations can be created almost everywhere around the world and are distinguished by terms like “Inc.” or “Limited (Ltd.)”. By process of incorporating, it is the way that a business is formally organized and officially brought into existence. Many businesses tend to lean towards incorporating as it can offer unique benefits that other business types do not. However, just like any business type, there are risks involved with incorporating. What are some advantages and disadvantages of corporations? Read on to learn more.
Understanding a Corporation
Sometimes called a C-corp, a corporation is a completely different legal entity from its original owner(s). Corporations provide the most safety when it comes to personal assets but does come with more startup cost. Owners cannot simply make changes to their business whenever they’d like. State law usually requires more extensive record keeping and may call for a vote among the shareholders if major decisions are to be made. But corporations aren’t just extra work. They offer significant benefits as well. Not only are the owners’ assets entirely independent from the businesses, but the corporation can also raise funds through stock options. Small business owners who are looking to eventually sell or raise money may find this option beneficial. There is special oversight in how you run the corporation and many more legal documents to file. However, in exchange, you enjoy maximum protection from debts and losses so you won’t lose your personal assets should the business fail.
Advantages and Disadvantages of a Corporation
When a business incorporates and becomes a corporation it comes with some pros and cons. One of the pros is that incorporating creates limited liability for its shareholders and directors. Meaning that the company can take risks without exposing their shareholders, owners, and directors to financial liability. Another pro for corporations is easy transfer of ownership to another party. Since an incorporated business can issues and trade shares, this allows for easy ownership transfer. One of the main cons that comes with a corporation is the operating constraints it faces. Companies must adhere to their bylaws and must ensure that it meets filing, reporting, and other requirements. Another con is that corporations are often exposed to double taxation of certain funds. Just like all business types, corporations come with their own benefits and risks.
Helping Small Businesses Flourish
The mountain of documents required to open your business can feel nothing short of overwhelming. At ProSe Legal, our professional LDAs have helped our neighbors open their small businesses for years so you can get right to the best parts of business ownership! Once you’ve chosen your small business structure, let us help ease the burden of starting the next chapter of your life.
If you have any questions about preparing business structure paperwork, today or call (909) 497-1349 to schedule your next appointment with our team of professional LDAs!
