Answer:
A corporation is a business recognized by the state as a legal entity separate from its owners (also known as shareholders). A corporation can be owned by individuals and/or other entities, and ownership is easily transferable via the buying and selling of stock. Since a corporation is its own legal entity, it can enter litigation on its own, protecting its owners from personal liability in the event of legal action.
Benefits:
1. Personal liability protection
A corporation provides more personal asset liability protection to its owners than any other entity type.
2. Business security and perpetuity
Corporation ownership is based on a percentage of stock ownership, which offers much more flexibility than other entity types in terms of transferring ownership and perpetuating the business for the long term.
3. Access to capital
Since most corporations sell ownership through publicly-traded stock, they can easily raise funds by selling stock.
4. Tax benefits
Although some corporations (C corporations) are subject to double taxation, other corporation structures (S corporations) have tax benefits, depending on how their income is distributed.
Drawbacks:
1. Lengthy application process
Filing your articles of incorporation with your secretary of state can be quick, but the overall process of incorporating is often a long one.
2. Rigid formalities, protocols and structure
Alongside the lengthy application process is the amount of time and energy necessary to properly maintain a corporation and adhere to legal requirements.
3. Double taxation
Most corporations (like C-corps) face double taxation, which means that the business income is taxed at the entity level as well as the shareholder level (based on their percentage of profits earned).
4. Expensive
Corporations are expensive to form and operate. It might be easy for established corporations to raise capital by selling shares, but forming and maintaining a corporation can be costly.
