What Is A Corporation And What Are The Benefits?

Posted by: Adair M. Buckner

What Is A Corporation?

A corporation is a separate legal entity from its owners. A corporation can be owned by one person or many people. The corporation is formed under the laws of the state in which it is operating, with Articles of Incorporation or Certificate of Formation.

What Are The Benefits Of A Corporation?

  • Your personal assets are protected.
    • The corporation shields your personal assets from the satisfaction of debts or liabilities of the business. But, you do have to follow corporate formalities to maintain this protection.

  • You may be able to achieve tax advantages.
    • The corporation allows ample opportunities to shield income through the shifting of income and expenses.
    • You eliminate self-employment tax by using the corporation to conduct business.

What Are The Disadvantages Of A Corporation?

  • Starting a business is more expensive and complicated.
    • Incorporation requires filing with the Secretary of State, for which you pay a filing fee. Unless you decide to try incorporating on your own, you will incur attorneys fees for helping you incorporate.
    • You must have an organizational meeting with recorded minutes. Plus, you are required to take care of other legal formalities.

  • Legal formalities must be followed during all phases of conducting business.
    • Annual meetings must be conducted with recorded minutes.
    • Documents must be executed with the correct corporate designations to maintain the protection of personal assets.
    • Changes in stock ownership must be documented correctly.

  • Ceasing business is more complicated and expensive.
    • You must conduct appropriate meetings with recorded minutes to authorize the dissolution of the corporation.
    • You must follow dissolution procedures and file documents with the Secretary of State and pay filing fees.

  • Filing tax returns is more complicated and expensive.
    • A separate tax return is required for a corporation, so you will have the expense of both corporate and personal tax returns.
    • If your accounting is not handled wisely, you could end up paying more in taxes than if you had not incorporated.

If you are looking to incorporate, and you need help deciding if a corporation is right for you or how to do it, please call Adair M. Buckner at (806) 220-0150 to set up a free initial consultation*.

*(The free consultation does not cover actual review of documents or giving legal advice on a specific situation.)


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