FabReads Digest with Law – 051 (Business Law – Forms of Business Organisations – Corporation)
A corporation is a business organisation that acts as a unique and seperate entity from it’s shareholders. They are considered a legal person. This means that the profits generated by a corporation are taxed as the personal income of the company.
A corporation pays it’s own taxes before distributing profits and dividends to the shareholders. Any income distributed to shareholders are taxed again as the personal income of the owners.
ADVANTAGES OF A CORPORATION
- Owners are not responsible for business debts: in general, shareholders are not liable for its debts. Instead, shareholders risk their equity.
- Tax Exemption: corporations can deduct expenses related to company’s benefits, including health insurance premium, wages, taxes, travel, equipment and more.
- Quick Capital through Sales:in order to raise additional funds for the business, shareholders may sell shares in the corporation.
- It can be transferred to new owners fairly easily.
- Personal assets of a corporation cannot be seized to pay for business debts.
DISADVANTAGES OF A CORPORATION
- Double Tax for Corporations: The Corporation must pay income tax at a corporate rate before profit can be transferred to the shareholders who must then pay taxes on an individual level.
- Annual Record Keeping Requirement:Corporations are required to keep annual records. The Corporation business structure involves a complex and substantial amount of paperwork.
- Owners are less involved than managers:when there are several investors with no clear majority interest, the management team may direct business operate rather than owners.
- Corporate operations and its establishment are costly.
Examples of corporations include a business organisation that possesses a board of directors and a large company that employs hundreds of people. About half of all corporation have atleast 50 employees.