Pros and Cons -- Corporations
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Pros and Cons of Operating Your Business as a Corporation
Corporations limit the liability of their owners. The selling and buying of stocks makes ownership easy to transfer and it's simple to add additional owners and investors. However, corporations are costly to set up and maintain. A corporation as a separate legal entity requires a separate tax return and corporations are also subject to double taxation.
Even though a corporation is not considered a citizen, it may still exercise some rights and privileges granted to natural persons:
- Right to Due Process and Equal Protection - Corporations enjoy the right of due process and equal protection according to the Fifth Amendment and the Fourteenth Amendment of the U.S. Constitution
- Freedom of Speech - Although some state interests may limit a corporation's freedom of speech, corporations can usually express themselves on matters of public importance regardless of whether it materially affects the corporate business or not
- Right to Counsel - A corporate criminal defendant has a Sixth Amendment right to counsel, however, since a corporate criminal defendant can not be physically incarcerated it does not have a right to appointed counsel if it can not afford it
- No Privilege Against Self-Incrimination - Corporations do not have a privilege against self incrimination
What Are The Advantages of Operating As a Corporation?
Incorporating a business offers a number of advantages. First, as a separate legal entity, a corporation limits personal, legal and financial liability. In the event of a lawsuit, the owner’s personal assets, property and reputation are separate from the corporation’s and are thus protected from the legal repercussions. Second, a corporation, as a separate legal entity, could easily outlive its founders and owners. Ownership is easy to transfer and thus consumers and investors are guaranteed that business will remain stable even in the event of a tragedy.
Third, a corporation, through the sales of stocks, will have an easier time attracting investors to help the business grow. Finally, corporations maintain a credibility and reputation that other businesses might not have. As corporations can be expensive and time consuming to create and maintain, the public is assured that the corporation is stable and contributing member of the community.
What Are the Disadvantages of Operating as a Corporation?
Although corporations enjoy a significant number of legal and economic advantages, there is a price to pay for those advantages. First, that price is literal: there are a number of fees which must be paid to the state to properly file for corporatization. Second, there is a heavy tax liability on corporations. A corporation is a separate legal entity which requires a separate tax return and corporations are also subject to double taxation. However, it would be possible to avoid this double taxation by forming an S corporation. Regardless of the corporation type though, the corporate tax code is very complex and thus may require the use of professional assistance each year.
Finally, corporations are often subject to greater amount of government regulation. This includes everything from tax regulation to environmental compliance. As a result, the corporation may be forced to make certain decisions an individual proprietorship or partnership might not make.
Should I Consult a Lawyer about My Business Management Structure?
The business organization laws vary depending on the state of incorporation. An attorney will help you determine what type of business structure is best for your organization. Timelines and deadlines for creating a business organization are generally strict in many states. A lawyer can assist you with following all the detailed procedural rules, contacting all the necessary state and federal officials, and adhering to the deadlines for organizing a business organization. Further, an attorney can give you advice as to the tax laws applicable to your business organization, and will help you follow the procedural rules of your state should you desire to dissolve.
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Last Modified: 06-20-2012 11:19 AM PDT
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