Advantages of Incorporation: A Comprehensive Guide

What is a corporation?

A corporation is a business entity or type business structure that provides its owners and shareholders with certain rights, privileges, and protections. The corporation may be set up as a business, a non-profit organization, or a social enterprise.

The corporate structure is more complicated and more expensive than most other business structures, but it offers certain benefits that can make it worth the time and money to set up.

What are the advantages of forming a corporation?

• Separate legal entity by the owner(s)

• Profits are taxed separately from the owners’ personal income

• Not dependent on the well being of the owner(s)

• Owners not personally liable for debt or losses

• Easier to get financing

• Easier to establish employee benefits (retirement plans)

What are the disadvantages of forming a corporation?

• Expensive to set up - includes fees to government agencies and probably legal fees.

• Salary and dividends are both taxed

• Annual tax rate is $800 minimum, whether company is earning or not.

• Complex to set up – owned by stockholders; highly regulated by IRS and State Tax Boards

• Must register with the State

• You have less control

• Complex to operate – more paperwork

• Decision-making is complicated and less flexible