Essay/Term paper: The advantages and disadvantages of incorporating a business

Essay, term paper, research paper:  Economics

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.