Corporations are the best known type of business entity, and some of the biggest companies in the United States are corporations such as McDonald's and Google, as explained by the Citizen Media Law Project website. A corporation has a separate legal existence from the owners of the company. Furthermore, corporations can sue or be sued and enter into contracts, as well as accumulate assets and debts separately from the shareholders of the business.
Liability
One of the biggest advantages corporations have is that the shareholders of the company are not personally liable for the business debts, obligations and liabilities of the corporation. Shareholders of a corporation are only liable for business debts up to the extent of their investment in the company. Operating as a corporation keeps the shareholder's home, car and other personal assets out of harms way. Creditors of an incorporated business may not pursue the personal assets of the company's shareholders as compensation for business-related debts and obligations.
Stock
Another advantage a corporation has over other business entities is the ability to raise capital. Corporations have the ability to issue stock as a means of financing the company's activities, or for expansion purposes. Incorporated businesses may issue multiple stock classes that carry various voting and profit privileges. An incorporated company has the ability to issue a public offering which allows shares of the company's stock to trade publicly on NASDAQ or the New York Stock Exchange. In addition, a corporation may offer stock in the company as a way to attract employees.
Formalities
A big disadvantage of operating as a corporation is the formalities and paperwork involved. Incorporated businesses are required to hold at least one meeting each year. Corporations must keep minutes at every meeting to detail how decisions were reached, and record the voting records of the company's shareholders. Annual reports must be filed with the state where the corporation operates and corporations are required to create financial statements. These requirements may cost a corporation significant time and money, especially if an outside accounting firm must be hired to create the corporation's financial statements.
Taxation
Another significant disadvantage of operating a corporation is the double layer of taxation that the company must adhere to. The first layer of taxation occurs when the company files taxes as a business with the Internal Revenue Service. The second tax happens when the corporation issues dividends to the company's shareholders. The shareholders of a corporation are required to pay taxes on dividends received from the company at their personal income tax rate.
