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 

1. Owners are not responsible for business debts: in general, shareholders are not liable for its debts. Instead, shareholders risk their equity.
2. Tax Exemption: corporations can deduct expenses related to company’s benefits, including health insurance premium, wages, taxes, travel, equipment and more.
3. Quick Capital through Sales:in order to raise additional funds for the business, shareholders may sell shares in the corporation.
4. It can be transferred to new owners fairly easily.
5. Personal assets of a corporation cannot be seized to pay for business debts.

DISADVANTAGES OF A CORPORATION 

1. 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.
2. Annual Record Keeping Requirement:Corporations are required to keep annual records. The Corporation business structure involves  a complex and substantial amount of paperwork.
3. 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.
4. 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.