Advantages and Disadvantages Of A Corporation

When starting a business, it is essential to determine what structure your business follows before you can register it. 

The typical business entities are a corporation, sole proprietorship, partnership, and limited liability company.

It is not a simple eeny meeny miny moe because choosing one will affect your taxes, profit, paperwork, and personal liability. 

Many people choose corporations as their business structure because of the benefits they’ll get, like liability and security. 

But to make a final decision, weighing the advantages and disadvantages of incorporating your business is crucial. 

The usual pros of a corporation are that you can protect your liability, have easier access to capital, have better security, and have stable business continuity. 

However, the incorporation process may be time-consuming, strict, and subject to double taxation. 

This article will break down its definition, pros, cons, and types to help determine if a corporation is the best for your business.

Colleagues In A Brain Storming Session.

What Is A Corporation?

A corporation is a business entity that separates the owners from their business to protect them from personal liability. 

If you choose a corporation as your business structure, you will be a “shareholder” along with other entities or individuals. 

You can transfer ownership with other shareholders by buying and selling stock or shares, representing a fraction of your rights. 

You will also elect a board of directors to help oversee the business progress, conduct business, and control properties.  

Related Reading: Employee Stock Purchase Plan – Read About It Here.

How Do Corporations Work?

Corporations protect you from liability if the business encounters disputes or legal action. 

You and other owners or shareholders have separate entities and corporation ownership. 

You can determine your ownership by knowing how many shares each owner has in the company. 

For the business to work, you’ll need a board of directors that shareholders, including you, will elect. 

The board of directors will help manage the business and oversee its process by hiring a management team. 

If you are the majority shareholder or the individual with the highest shares, you can become the CEO, but it is only sometimes the case. 

Furthermore, the ownership within a corporation depends on the number of shares you have, which sometimes plays a huge role in elections.

This stock or share is easily transferable, so you can buy and sell it to other shareholders or people who want to be shareholders.

By having access to an easy transfer of ownership, your business can thrive more consistently in the future. 

The Advantages Of A Corporation

Employees Working Together On A Project.

Corporations offer owners the best personal liability protection, which is why big companies form it. 

If you want to launch your business into a bigger market or initial public offering (IPO), it is ideal to become a corporation. 

But there are other benefits to forming a corporation, including limited personal liability, transferability, business security, tax benefits, and easier access to capital. 

Personal Liability Protection

A corporation offers better protection of assets and liabilities than other business entities. 

When someone sues your corporation, you, as a shareholder, will not be responsible for any legal actions or debts. 

Your assets will remain yours even if the business needs more money to pay for settlements. 

Transfer of Ownership

It is easy to transfer ownership within a corporation because you can do it by buying and selling stocks. 

While there can be changes in the number of shares, they will not affect the corporation’s process and existence. 

Transfer of ownership is essential for you because it allows space for new interests and growth while maintaining control.

Meanwhile, your business will remain stable because it can improve its value and fulfill goals.

Security and Continuity of Business

A corporation’s business ownership depends on how many shares a shareholder has.

The company can transfer ownership based on the highest shares and keep the business going. 

You can easily buy and sell your stocks, which will not affect the corporation even if you leave or the majority shareholder changes. 

If shareholders die, they can quickly transfer their ownership to someone else, like a family member. 

Tax Benefits

There are two types of corporations, namely C-corporations and S-corporations which are subject to different tax policies. 

C-corporations have double taxation, while S-corporations have tax benefits depending on their distributed income. 

Under S-corporations, the business entity and shareholders can split their income so that business tax rates will differ. 

Access to Capital

When you form a corporation, you can establish an IPO and gather capital by selling your company shares. 

Unlike other business entities, it can help your business grow and save you from bankruptcy. 

The Disadvantages Of A Corporation

While forming, a corporation sounds best if you want the best protection from liability, it still has potential disadvantages. 

You can profit from corporations without risking your liability and assets, but forming them can be expensive. 

Incorporating a business may require more money and process before it becomes a fully-functioning corporation. 

Lengthy Application Process

Incorporating a business takes months before the paperwork is ready for approval and registration. 

The extensive paperwork already needs experts to work on it, so you must hire people to do it. 

Consider hiring lawyers, accountants, and tax advisors to help you process your documentation to ensure correct details. 

One thing you need to take care of during incorporation is electing a board of directors, bylaws, meetings, ownership agreements, and protocols. 

These formalities are essential to keep your corporation status, so prepare to invest money, time, and energy. 

Double Taxation

C-corporations are usually subject to double taxation at the entity level before they reach the shareholder level. 

You can form an S-corporation to avoid double taxation, but you must meet all legal requirements.


Before you can even operate your corporation, you must shell out money to prepare paperwork. 

Aside from the documentation charges, you may also have to pay consultants, taxes, and start-up capital. 

Related Reading: How To Start Something New – Learn About It Here

Types of Corporations

Standard corporations are C, S, closed, and non-profit corporations. 


C-corporations allow your company to have an unlimited number of owners or shareholders.

You can raise the corporation’s capital by selling shares, which makes it appealing for large businesses. 

You can also receive protection from the corporation’s debts and legal actions; they pay taxes separately.


S-corporations don’t have double taxation because shareholders report their records through their tax returns and income tax rates. 

Moreover, an S-corporation cannot have more than 100 shareholders; all must be US citizens. 

Closed Corporation

Closed corporations only have a few shareholders, primarily private individuals or family businesses. 

These private companies cannot trade or allow the general public to invest in the company. 

There might be an extra challenge for you to raise capital without the investors, but you still get personal liability protection. 

Non-Profit Corporation

You can also set up a non-profit corporation if you have advocacies for politics, education, society, religion, and charities. 

Each state has different regulations and requirements, but the main rule is never to distribute profit to the members. 

You can give compensation or salary to the people who work for operating the corporation, but you cannot profit from it. 

You are also eligible for tax advantages like filing for tax-exempt status like the 501(c)(3).

Corporation Application Requirements

Depending on your state, there are corresponding requirements and regulations to form a corporation. 

If you want to successfully apply this legal entity to your business, you must follow your state’s legislation. 

The standard requirements of a corporation are to formulate your corporate bylaws and file articles of incorporation. 

It is not an overnight process, as it may take weeks to months to finalize details, so you need a lot of time before launching your business. 

The best way to ensure your registration is to consult an attorney and tax advisor to avoid any issues.

Related Reading: Are Entrepreneurs Risk Takers – Read About It Here


Work Stations At An Office.

A corporation is an ideal business entity if you are pursuing a large company and want to be separate from its processes. 

While it can benefit owners or shareholders because of its protection, security, and ease, disadvantages exist. 

You must consider investing much time and money to form the corporation before you can even operate it. 

The application process, expenses, and regulations also differ depending on which type of corporation you wish to form.

You can incorporate your business as a c-corporation, s-corporation, closed corporation, or non-profit corporation, but each has a different purpose, benefits, and regulations. 

It is best to consult professionals to make the wisest decision for your business and help you with documentation.

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Brooks Conkle

Brooks is an Entrepreneur, Sponge, Father, Husband, & Follower of the Golden Rule. He has over 15 years of experience as an entrepreneur after graduating with a BSBA in Finance from Auburn University. He’s addicted to growing new business ideas and any food that includes chocolate and peanut butter. Brooks is a firm believer in creating multiple streams of income and creates content here on to help other hustlers in the areas of marketing, online business, personal finance, and real estate.