When it comes to forming a corporation, it would appear that for many business owners the
advantages may far exceed the disadvantages:
1. Sole proprietorship
and partnerships are subject to unlimited personal liability when it comes to business
debt. Creditors of the business can hold the owners of the business personally liable for
debt and can move to seize the proprietor's or partner's home, savings or other personal
assets. The shareholder of a corporation has only the money he has put into the
company to lose, and usually no more.
2. A corporation has
the most enduring legal business structure. If a sole proprietor or partner dies the
business ends or it may become involved in various legal entanglements. Since a
corporation has a life of its own, it may continue on regardless of what may
happen to its individual officers, managers or shareholders. Also, ownership of the
business may be transferred without disrupting operations through the sale of stock.
3. Capital can be more easily raised with a corporation. This may be
accomplished through the sale of stock or other equity interests. With sole
proprietorships and partnerships, investors are much harder to attract because of the
personal liability issue. For example, if the investor in a sole proprietorship (or some
forms or partnerships) wants a share of the business for his capital contribution, he
could become subject to a demand on his personal assets from creditors if the business
4. With partnerships each individual general partner may bind the business to arrangements
that may result in serious financial difficulty. A corporation's shareholders
cannot legally commit the company by their acts simply because they have invested
5. Corporations can offer anonymity to its owners. For example, if a
business person wants to open an independent small business of any kind and does not want
their involvement to be public knowledge, their best choice is to incorporate. If they
open as a sole proprietorship they will clearly be identified as the owner. Also, if they
are involved in a partnership this will most likely become a matter of record.
6. Corporations offer
the advantage of allowing tax-deductible benefits such as health and life
insurance, travel and entertainment deductions as well as providing an increased tax
shelter for retirement plans.