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Incorporation: Advantages & Disadvantages

When a business is in its inception, the owners must decide the best form that it should take. Owners need to be very clear about what they are getting into by forming a corporation.


The advantages to incorporation are many. Those starting the business technically are no longer owners, but shareholders. This means that they avoid personal liability if the business fails or is unable to meet loans. The shareholders only retain liability to the extent they are vested. Their personal assets cannot be attached.

A further advantage is that the corporation can issue stock to raise revenue. This can be a major boon for new businesses; profits for fledgling enterprises often take a number of years to catch up with start-up and operating costs. Related to this is that a corporation can attract quality employees by offering shares of stock.


An attorney can provide a detailed analysis of whether the advantages outweigh the drawbacks when individuals are seeking to determine which business form is best suited to their needs. The disadvantages are substantial, and should be duly noted. For one, corporations can become quite bogged down in bureaucratic red-tape. They are required to hold annual meetings and provide minutes and details of how each decision is reached. They must produce annual reports to its shareholders that need to be filed with the state.

A further significant disadvantage is that corporations are, in essence, taxed twice: first at the corporate level, and then the shareholders are taxed again on the dividends they receive.

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