Advantages and Disadvantages of Corporations
A corporation is an artificial person created through state charter. As a legal person, the corporation can enter contracts, own property and hire employees; and is a separate taxpayer from its owners, the shareholders.
Advantages of Incorporation
The shareholders are not liable for the debts and liabilities of the corporation beyond their contributions to capital. However, lenders will usually require personal guarantees by the shareholders on loans to the corporation.
The corporation continues in existence, even if its shareholders die.
Ease of transfer:
Shares of stock can be easily transferred to children or other buyers to raise capital or for estate distribution purposes.
The shareholders elect the Board of Directors, who manages the affairs of the corporation, including appointment of officers.
Tax and fringe benefits
Tax-qualified retirement plans
Medical and disability plans
Group life insurance
Split-dollar insurance plans
Salary continuation plans
Disadvantages of Incorporation
Cost to establish a corporation
Need to observe corporate formalities
Double taxation of income if dividends are paid. Possible tax on excess corporate accumulated earnings.