When it comes to businesses, one of the most recognized and widely used entity forms is the Corporation. The reason for the dominance of the corporate form within the business world stems from the very problems that abounded the Corporation’s predecessor, the Partnership. Individuals utilizing the Partnership often found that they had problems with personal liability for those who had contributed capital, instability within the Partnership, relative illiquidity of the individual investor’s investment, and often burdensome joint management style of the Partnership. Thus, as the modern corporate form developed, Corporations, in their basic sense, sought to alleviate many of these perceived weaknesses of the Partnership.

Modern Corporations developed what can be broken down into four major characteristics that all sought to answer some of the problems and issues that plague Partnerships in the modern business world. First, Corporations are a legal entity with an indefinite lifespan. Second, Corporations have shares or stock that can be freely transferred, allowing owners an investment that is much more liquid than ownership in a Partnership. Third, Corporations have a centralized management system to overcome the often burdensome joint management style. With this style of management in place, Corporations have the stability of having someone, or thing, in power that has the final say. Fourth, and perhaps most importantly, provided Corporate Formalities are properly observed, Corporations provide their investors, officers, and board members with limited liability. So, if the Corporation is properly operated and maintained, owners and operators of a Corporation are shielded individually from the obligations and creditors of the Corporation, even if the Corporation cannot pay its debts. However, as with most things in life, with the advantages of a Corporation there follows at least a few disadvantages.

There are two main disadvantages to using the Corporate form. Perhaps the most notable disadvantage to choosing the Corporate entity for your business to be organized under is that a Corporation and its owners are taxed twice. The money the Corporation earns is first taxed at the corporate level, something that a traditional Partnership and many Limited Liability Companies do not experience. Then, once the money is paid out to shareholders, the money is taxed again, this time at the individual level. Thus, Corporations are said to be taxed twice. Secondly, in order to obtain the greatest benefit of the Corporate form, limited liability, Corporate Formalities must be adhered to. This makes the Corporation relatively high maintenance as compared to the traditional Partnership. While the Formalities that must be observed and completed are not overly difficult, they are additional tasks that must be completed often on a regular basis. Filings must be made, funds segregated, separate tax returns filed, and so on.

So now that you have gone over the above information you know a little bit about Corporations. However, the task of choosing whether to utilize a Corporation for your business is far from over. Once you decide that a Corporation is right for you, you still have to consider what type of Corporation you want to use, and there are several. You can choose between the C Corporation, S Corporation, Professional Corporation, and Non-Profit Corporation to name a few. Often times, the decision between the various types of Corporations is an easy one, and other times its not, that is why it is important to seek adequate counsel both from an accountant for tax advice and an attorney. If you would like to discuss the possibility of incorporating your business, the Gabriel Law Office, PLLC is happy to help you make an informed decision. Moreover, should you choose that the Corporate form is right for you, we can prepare the necessary documents and make sure that your business is properly incorporated.

  • Corporations
    1. C Corporations
      S Corporations

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