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The Advantages And Disadvantages Of Incorporating A

Business Essay, Research Paper


The Advantages and Disadvantages of Incorporating a Business


In order to mention all the advantages and disadvantages of


incorporating a business, first I should try to explain what a corporation is.


In 1819, Chief Justice Marshall of the United States Supreme court said: ” A


corporation is an artificial being, invisible, intangible, and existing only in


contemplation of the law.” In the Webster’s College Dictionary corporation is


defined as “an association of individuals, created by law and having an


existence apart from that of its members as well as distinct and inherent powers


and liabilities.” A corporation is divided into many units called shares of


stock. The owners of the stock are called stockholders or shareholders. One of


the advantages of incorporating a business is that because a corporation has a


legal existence, shares can be sold at any time without affecting the operations


of the corporation. Also, shares can be bought at any time. Another big


advantage of incorporating a business is that corporation have limited


liabilities. This means that the corporation is responsible for its own acts and


obligations under the law. This characteristic protects the stockholders of the


corporation because the only financial loss that they may suffer is limited to


the amount invested. Also, the creditors of the corporation can not go beyond


the assets of the corporation to satisfy their claims.


The stockholders or the shareholders are the ones who have control over


the management of a corporation’s operation and activities. They are the ones


who elect the board of directors, and the board of directors are responsible to


the stockholders. Also, the board of directors are responsible for the


management of the day-to-day operation of the corporation. They also decide


when and how much of their income to give to the stockholders or shareholders.


Another characteristic that can be an advantage of incorporating a


business is that corporations may be organized for nonprofit organizations such


as colleges, hospitals, and others humanitarian purposes. However, most of the


corporations are organized to earn a profit for stockholders.


The biggest disadvantage of a corporation is that corporations are


subject to taxes. Corporations are not like proprietorship and partnership


forms of organization, they must pay federal income taxes. Also, stockholders


must pay income taxes on any dividends distributed to them. So, all the


corporations are being tax twice and it is what is call double taxation.


There are many advantages of incorporating a business. Before any body


decide to do that, they should study every case in a particular way and decide


if it is worth it to incorporate a business. Most of the biggest business in


the world have become corporations because it is easy to control and better way


to get new capital.

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