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ADVANTAGES AND DISADVANTAGES OF CORPORATIONS
A People’s Choice can save you hundreds of dollars by preparing all
necessary corporate formation documents instead of an expensive attorney!
Business Learning Center
Our online learning center provides quick access to valuable information contained in our web
site, California and Federal Codes, Court web sites and other legal sources of information.
ADVANTAGES:
Protect your corporate name: Once you establish your corporation in a particular state, no other company can
be established under the same name in that state.
Taxes
: Corporations avoid double taxation of corporate profits and dividends when they make an S-Corp election.
Typically profit and loss also passes through an LLC and gets reported on the personal income tax returns of the corporate owners. An LLC can, however, elect to be taxed as a corporation.
Personal protection for officers: Corporations and LLCs allow the owners of the corporation to isolate and
protect their personal assets. If a corporation has been properly structured and managed, the owners of the
corporation should have limited liability for the corporate debts and obligations.
Credibility:
Credibility is in the eyes of the beholder. Adding “Inc” or “LLC” after your business name gives the
appearance to consumers, vendors and others that you are an established company.
Duration: A corporation is capable of continuing indefinitely. Its existence is not affected by the death or
incapacity of shareholders, directors, or officers of the corporation. An LLC has a limited existence. Absent a
contrary agreement, a limited liability company (LLC) is dissolved upon the death, withdrawal, or bankruptcy of a
member unless the business is continued by unanimous vote of the remaining members. Although the operating
agreement can be drafted to avoid such a result, the life of the LLC is still limited to the termination date in the Articles of Organization.
Expenses are deductible: Both corporations and LLCs are allowed to deduct normal business expenses before
allocating income to owners.
DISADVANTAGES:
Formalities:
In order to maintain your corporation in good standing, there are many formalities of organizing and
running the corporation that must be followed. Failure to follow these formalities may result in the corporation losing
its corporate status or a creditor “piercing the corporate veil.” Piercing the corporate veil allows a director or officer
of a corporation to be held liable for the actions of the corporation. Reports and tax returns must be filed in a timely
manner, and files and records (including minutes of meetings) must be properly maintained.
Cost
. Establishing (and maintaining) a corporation costs money. There are fees to file the Articles of Incorporation with the Secretary of State, tax prepayment fees, and other annual costs.
Tax consequences. Corporations have potential double-tax consequences — once when the company makes its
profit, and a second time when dividends are paid to shareholders. S corporation election by a corporation eliminates this double taxation.
Dissolution. When a corporation is dissolved, a formal process must be followed. Dissolution does not happen
automatically. Dissolving the corporation includes gathering corporate assets, paying creditors and outstanding
claims, filing final tax returns, and distributing the remaining assets to shareholders.
A People’s Choice can save you hundreds of dollars by preparing all
necessary corporate formation documents instead of an expensive attorney!
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