When it comes to forming a corporation, it would appear that for many business owners the advantages may far exceed the disadvantages:
- Sole proprietorship and partnerships are subject to unlimited personal liability when it comes to business debt. Creditors of the business can hold the owners of the business personally liable for debt and can move to seize the proprietor's or partner's home, savings or other personal assets. The shareholder of a corporation has only the money he has put into the company to lose, and usually no more.
- A corporation has the most enduring legal business structure. If a sole proprietor or partner dies the business ends or it may become involved in various legal entanglements. Since a corporation has a life of its own, it may continue on regardless of what may happen to its individual officers, managers or shareholders. Also, ownership of the business may be transferred, without disrupting operations, through the sale of stock.
- Capital can be more easily raised with a corporation. This may be accomplished through the sale of stock or other equity interests. With sole proprietorships and partnerships, investors are much harder to attract because of the personal liability issue. For example, if the investor in a sole proprietorship (or some forms or partnerships) wants a share of the business for his capital contribution, he could become subject to a demand on his personal assets from creditors if the business becomes insolvent.
- With partnerships each individual general partner may bind the business to arrangements that may result in serious financial difficulty. A corporation's shareholders cannot legally commit the company by their acts simply because they have invested in it.
- Corporations can offer anonymity to its owners. For example, if a business person wants to open an independent small business of any kind and does not want their involvement to be public knowledge, their best choice is to incorporate. If they open as a sole proprietorship they will clearly be identified as the owner. Also, if they are involved in a partnership this will most likely become a matter of record.
- Corporations offer the advantage of allowing tax-deductible benefits such as health and life insurance, travel and entertainment deductions as well as providing an increased tax shelter for retirement plans.
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