Corporation: Advantages and Disadvantages

Advantages

  1. Advantage
  2. Personal liability protection
  3. Business security and perpetuity
  4. Access to capital
  5. Tax benefits
  6. Limited Liability
  7. Separate Entity
  8. Transfer of ownership
  9. Management expertise
  10. Unlimited potential
  11. Easy to invest in

Personal liability protection


A corporation is required by law to protect its individual owners against personal liability. Having a protected personal liability insurance in place will help you avoid facing the huge risk of lawsuits for others’ misdeeds. Because the majority of Americans are already aware of the risk of lawsuits, a corporate liability insurance might just be of great help. Business security A corporation will be well-equipped to carry out its daily tasks without relying on any outside help, such as a security guard or even a receptionist. Similarly, because the corporation has multiple owners, it will be more than capable of handling external contingencies such as unexpected lawsuits and large payouts.

Business security and perpetuity


Tax benefits Limited Liability Transfer of ownership Limited liability Easy to invest in Few other options available Without getting all of the nitty gritty facts about the type of corporation you’re considering, here are 10 benefits of forming a corporation, and why you should. This is the first time anyone in America can form an LLC, an S-Corp, a C-Corp, a D-Corp, or a partnership without facing some sort of tax consequences. An LLC is a “master limited partnership” that doesn’t pay taxes. This is the “tax deferred” option. However, when it comes to changing ownership, forming and liquidating, LLCs are subject to penalties and state-specific set-up and transfer requirements. The “tax deferred” option An S-Corp is an operating company that is taxed, but not through an LLC.

Access to capital


The transition from a partnership to a corporation is significant in many ways. No longer does your partner be your heir-apparent. In most states, the filer (not the owner) is the one named on the partnership documents. Your business assets are your business and it makes sense for you to own and invest in them.

Tax benefits


More and more states are recognizing that corporations are a good way to deal with business formation issues (including income taxes), and that they’re not a limiting factor for new business formation. I’ve done several presentations on this topic, and I also think it’s useful to point out that the vast majority of small business income comes from sole proprietorships, partnerships, LLCs and corporations, so there’s no reason to try to go it alone and start a one-man operation. The post 10 Reasons You Should Form A Corporation appeared first on The Lars Larson Show.

Limited Liability


Corporations can provide unlimited liability protection to the shareholders of the entity, eliminating personal liability for shareholders or agents of the company. However, shareholders of a corporation will generally be required to prove that they have acted reasonably and won’t be sued personally. Under California law, a corporation can have up to 2,400 shareholders, but the company must have a majority of shareholders (over 75 percent) who meet the definition of a “bona fide resident of California” in order to meet that requirement.

Separate Entity


This is the fastest way to gain more control over your business and manage the direction your business takes. Now is the time for a separation. The ability to divide business assets and management expertise between you and your accountant gives you complete control and removes your accountant’s bias, which can result in lost business. Reasons To Form a Separate Entity As mentioned above, getting your personal assets out of your business is a smart move. With no residual business ownership, you can offer an investor what you’ve built up in a separate entity that has their own set of rules. They also get your best customers and you’ll have them to service them. You can now leverage your best talent for an office, software, marketing, accounting and legal staff.

Transfer of ownership


The long and short of it is that a Corporation allows you to hold stock in your company (while retaining all the liabilities that come with ownership), and allows you to transfer shares to anyone you choose and maintain unlimited liability. Depending on the capital requirements and your desires, your company can be a fully independent entity, or you can sell a majority interest to an outside company. Power of attorney Perhaps you have business concerns that are more personal in nature. A Trust allows you to appoint someone to make decisions on your behalf in the event of your incapacity or death. You can set up a Trust with the express intent of transferring the assets to beneficiaries. Forget the IRS…why use your personal Credit Cards?

Management expertise


It is easier than ever to open a new business. Taking control of your business and establishing your own credentials to run it gives you the opportunity to control all of your future and the business itself becomes a true investment. If you haven’t started your own business, take the first step today. “> There is no doubt that starting a new business is risky, especially with all the negative publicity that comes with it. Making it as a startup is not easy, which is why it pays to start early. But there are also many advantages to starting a business when you are younger, as I’ll show you in the following 10 benefits. 1. Your savings may last longer.

Unlimited potential


Corporations exist for a reason. In order to be successful, they must not only help you make a profit, but help you maximize your potential. Unlike a small business, corporations can have unlimited liability. This means you can do whatever you want and be responsible for all of it. Once the corporation starts making money, it can always pay yourself and create new jobs.

Easy to invest in


Pros & Cons of Individuals & C Corporations Effective management, Title stability, Active Company, Ability to grow your business Revolving door on management, Limitations on liability Effective management, Title stability, Active Company, Ability to grow your business Limited liability, Limited Contractual obligations, Limited Regulatory compliance, Instant collapse, 100% ownership Legal considerations of a corporation, Additional factors Things You Need To Know Before Securing a Corporation Do not sign a Lien before obtaining a Corporation Spend time researching what the Tax ramifications are Can you keep your personal assets separate? Are you ready for the corporate tax hit? Do you know what is in store with IRS in the future? Is it worth the risk?

Disdvantages

  1. Lengthy application process
  2. Rigid formalities, protocols and structure
  3. Double taxation
  4. Expensive
  5. Agency problem
  6. Difficult to form

The Lengthy Application Process


Forming a corporation can be quite a lengthy process. To start off with, a prospective entrepreneur must fulfil several legal requirements such as filing a police bond of Rs 2 Lakhs, filling out a non-disclosure and declaration form, among others. All of these requirements must be duly filled in and submitted before the filing deadline. Failure to complete the process in time will leave you liable to be prosecuted and held liable for a penalty or both. As a result, the process could take anywhere between 15 to 45 days. Rigid Formalities The structure of the corporation itself should adhere to a specific set of formalities.

Rigid Formalities Protocols and Structure


All Companies are required to register themselves with the following governments. Government of India. State governments. At times, the country also has rules for businesses that are new in the system. These are not much different from corporate structure rules. But Companies must comply with their local registration laws. Costly process Double taxation. Existing laws are quite lenient, but the taxmen are often strict when it comes to finding the loopholes. Rigid formalities protocols and structure Rigid rules governing the company from the entity registration till the holding company registration takes place. For example, Companies are restricted to one managing director, who must be a person with 100% capacity to devote himself to the company.

Double Taxation


Any form of income that a taxpayer earns is subject to taxation by both the source and the place of the same. In case of a foreign company, it is double taxation. Strict documentation The rules laid by the home country are extremely tough. Thus, in order to avoid problems, one needs to submit meticulous documentation and check it often. Complex procedures There are several formalities associated with forming a corporation in UAE, which are very time-consuming. Lack of flexibility Corporation form is very restrictive in nature and one has to submit the complete form before the relevant authority for approval. This usually limits the course of action available to the individual.

Expensive


Double taxation Difficult to form Abolishing the Corporation Law The Corporation Law in India is a form of corporate law that regulates the conduct of corporations. This law has existed from the formation of the modern republic, the states having passed their own corporations Acts. These Acts established the importance and nature of corporations and their structures for taxation and development purposes. This is why the Act of 1835, which governs the incorporation of a corporation, is known as the Madras Corporation Act 1835, or the Madras Corporation Act as it is popularly called. The Madras Corporation Act 1835 had to be abolished as it had also become a hindrance to the industrial development of the country.

Difficult to Form


Flexibility of Incorporating Efficient legal regulations Efficient legal regulations Meaningful Companies’ tax obligation Meaningful companies’ tax obligation Flexibility of formation Flexibility of merging Companies Flexibility of splitting Companies Flexibility of going international Flexibility of consolidating in multiple jurisdictions Flexibility of holding multiple business names in a single name Flexibility of splitting Companies Flexibility of merging companies Flexibility of disposing or merging an organization Flexibility of dissolving a company Meaningful Companies Most authentic companies are formed as Limited Liability Companies (LLC). In the US, the IRS allows for other structures such as limited partnerships, a stock corporation or a cooperative company.

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