What is a corporation?

A corporation is a form of organization that provides its owners and shareholders with certain rights and privileges, including protection from personal liability. The corporation may be a business, a non-profit organization or even a government of a new city or town.

The corporate structure is more complex and expensive than most other business structures. A corporation is an independent legal entity, separate from its owners, and as such, it requires complying with more regulations and tax requirements.

What are the advantages of forming a corporation?

  • Separate legal entity by the owner(s)

  • Profits are taxed separately from the owners’ personal income

  • Not dependent on the well being of the owner(s)

  • Owners not personally liable for debt or losses

  • Easier to get financing

  • Easier to establish employee benefits (retirement plans)

What are the dis advantages of forming a corporation?

  • Expensive to set up - includes fees to government agencies and probably legal fees.

  • Salary and dividends are both taxed

  • Annual tax rate is $800 minimum, whether company is earning or not.

  • Complex to set up – owned by stockholders; highly regulated by IRS and State Tax Boards

  • Must register with the State

  • You have less control

  • Complex to operate – more paperwork

  • Decision-making is complicated and less flexible