A corporation (Also see Benefits Of Accounting Services For The Corporate World) is the most common way of doing business by most of the world’s largest firms. It is different from a partnership or a sole proprietorship as a corporation is a business which has received legal recognition as a separate legal entity along with its responsibilities, powers as well as liabilities.
Before the business owners make up their mind whether to set up an incorporation or not, there is a few advantages and disadvantages that they should take into consideration.
Advantages
Owners can sell their ownership interest easily
If the stock is traded in public, it will only take a couple of minutes for the investors to sell the ownership interest they have in a corporation directly by giving orders to their stockbroker. By signing a transfer statement, the owner can transfer the stock certificate to another person if the stock is not traded in public.
Limited liability
Typically, people who own a corporation will not lose more than the amount of funds they have put into it. Conversely, an owner of a partnership or a sole proprietorship proprietor can lose not only his or her investment but also various other private assets. That is to say, doing business in the corporate form protects the owners from the majority of creditors. This takes place as corporations are considered as legal institutions, and due to this status, a corporation has the right to sue others, and they may be sued too (Also see Accounting Principles – Going Concern). Besides, a corporation needs to pay for the income taxes on its taxable revenue.
Corporations may potentially pay lesser taxes
Some say that a typical corporation’s net earnings are first taxed on the corporation’s tax return. The corporation may give out part of its net earnings to the shareholders in the form of a tax-free dividend.
If the company is very profitable (Also see Ways to Increase Your Business Revenue), it may be required to pay tax lower than it would be otherwise when the business is run using sole proprietorship or partnership.
To acquire more understanding right into this issue prevent or reduce the impact of this potential concern, you must discuss with legal and tax experts about various patterns of business structures. Engage an accounting service in Singapore if you have any queries.
Funds can be raised quickly
Because of limited liability as well as the convenience of purchasing or selling shares, it is understandable why investing in corporations is a more attractive choice for most investors, compared to investing in partnerships or sole proprietorships. The corporations’ ability to allure investors enables them to be able to collect the funds required to handle and develop their operation.
Disadvantages
Legal complexity
To establish incorporation, one has to submit the application and get the approval of one of the states. As soon as the request is approved, the corporation has to abide by that state’s policies (Also see Questions You Should Answer Before You Start Your Business). On the other hand, it may only take you a few minutes to establish a sole proprietorship. Sometimes you will need a tax identification number from the state, and nothing more than that is required. Sole proprietorships do not have to comply with a lot of the lawful demands imposed on a corporation.
Higher Maintenance Costs
All corporations required to hold AGM and prepare a set of audited (Also see Ways to Ensure a Smooth Audit Process in Your Company) or unaudited financial statement once per annum. These additional mandatory requirements no doubt increase the maintenance cost of running a business using a corporation.