Following are the advantages of incorporation:
Separate legal entity: As mentioned earlier, a corporate is distinct from its owners and considered a separate legal entity. Thus conducting business, having its properties, entering into contracts, borrowing and lending money, suing and being sued.
Limited liability: Corporations are separate legal entities, therefore, owners are liable only to the extent of their amount. The creditors cannot claim owners’ assets to pay the debts owed by the shareholders.
Unlimited life: Death of any member of the board, shareholder, or any other member of the corporation does not mean the death of the corporation. The inability to perform duties does not affect the operation of the corporation. It continues to the legal entity.
Transfer of shares: No approval is required from the shareholders for selling the shares owned by the shareholders or individual owners in the case of a publicly held corporation.
Following are the disadvantages of incorporation.
Incorporation costs: The process of incorporation is costlier than forming a proprietorship or partnership.
Double taxation: There is a remittance of two taxes, such as the corporation’s earnings and the dividends paid to the shareholders.
Documentation: Annual reports and tax refunds and maintenance of account records, licenses, and other important documents must be filed apart from the incorporation documents.
Types of Corporations
An individual or a group of individuals can create a corporation by coming together and sharing the same goal. As mentioned earlier corporation can also be formed for not making any profits. However, majorly there are profit-making corporations where the corporation’s purpose is to generate revenue and provide returns to their shareholders in accordance with their shares.
Following are the three types of business incorporation:
C Corporation: This type of corporation is one of the common forms of incorporations containing all the features of a corporation. The owners receive profits, and taxation occurs at the individual level.
S corporation: This type of corporation is similar to a c corporation. However, differs from the limitation of the owner as well as for tax. A hundred shareholders constitute S corporation where taxation does not occur separately. The shareholders share the profits as well as losses on their income tax returns.
Non- profit corporations: These corporations are not formed for making a profit and generally operate without making any profits. These corporations are exempt from taxation. The donations or contributions received by such corporations are spent on the operations or expanding the corporation.
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