What is the Main Advantage of Incorporation?

There are many advantages to incorporate your business. But perhaps the most important advantage of incorporation is that it exists as an entity separate from its owners. Whereas sole proprietorships and partnerships are entities attached to their owners, corporations are their own entities and may exist even the main owner (shareholder) passes away or sells his/her interest in the company.

What does this mean? It means that owners of a corporation have limited liability, unlike sole proprietorships and partnerships, in which owners are personally liable.

Another advantage of incorporation is that the corporation has an unlimited life. As mentioned, if an owner dies or sells his/her share of the company, the company may continue to operate.

Also, it is relatively easy to sell or transfer ownership of corporation through the sale or transfer of stock.

Sale of stock is also how a corporation is able to raise capital, which is yet another advantage of incorporation. As is common practice in the corporate world, corporations will sell stock in order to raise capital for the company.

And of course, corporations are centrally managed, which represents the continuity of the corporation if it is sold, although, it's not uncommon to see change in management in this case.

What are the disadvantages?

There are some disadvantages to forming a corporation, but with proper planning, these can be avoided or overcome. The main disadvantage of incorporation is in the way a corporation is taxed. Corporations typically pay taxes on profits they earn, and are taxed again on shareholder income. In other words, there is the possibility of being double taxed.

Forming a Corporation

There are different types of corporations, each having their own advantages and disadvantages and tax implications.

While forming a corporation doesn't require a lawyer, it's a good idea to gain the advice of a qualified professional who can guide you through the legalities and consequences of incorporating a business. Based on your unique business needs, a qualified professional can also advise you on the most suitable type of corporation to your business, and help you better understand the tax consequences.

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