Pros & Cons of Operating Your Business as a Corporation
When you start a business, you must decide what type of entity you wish to establish. Often, entrepreneurs choose to start a corporation as a way to separate their business assets from their personal assets. There are both advantages and disadvantages to running a corporation.
There are three types of corporations: C corporation, S corporation and limited liability company (LLC). Each type has its own pros and cons, depending on your specific situation. Here are some general advantages to starting a corporation:
- Keeping your liabilities separate. Because a corporation is a separate legal entity from its owners and shareholders, they cannot be personally sued or held liable for debts.
- Obtaining investors. If you wish to go public and sell shares of your company, you must be incorporated.
- Achieving tax benefits. Each type of corporation has different tax structures that may allow you to avoid double taxation or obtain pass-through taxation.
- Having perpetual existence. Even if the owner leaves, dies or sells the company, it can continue to run.
- Obtaining credibility. To the public, an incorporated company often sounds more credible.
- Protecting your business name. Registering your business name is part of the incorporation process and gives you exclusive rights to that name.
In addition, corporations are granted certain rights and privileges similar to United States citizens, such as:
- Right to due process and equal protection
- Freedom of speech
- Right to counsel
There are also disadvantages to having a corporation, including:
- Time and cost. The process of incorporating your business is often expensive and time-consuming. There are more paperwork and filing fees than for other types of businesses.
- Formalities. In order to remain in compliance with your state’s laws, you must follow certain formalities, including having regular director meetings and keeping meticulous records.
- Taxes. While there are tax benefits to having a corporation, there are also drawbacks. You need to file separate forms for the business and your business taxes cannot apply to your personal taxes.
The type of business you choose to run depends on your priorities. The experienced Los Angeles business law attorney at Lurie & Seltzer can help you determine what entity is right for you. Call us today at 424-256-0459 or contact us online to schedule an initial consultation.