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C

Pro and Cons of Corporation

Pro

Cons

Personal assets protection

As a separate legal entity it allows the business owners to separate and protect their personal assets in case of a lawsuit of claims against a business entity

Limited liability

The shareholders of a corporation are generally not responsible for its debts and, in case of bankruptcy, the loss will be limited to their investment.

Tax benefits

The corporate tax rate is generally lower than the individual tax rate. As such, it may offer some fiscal advantages.

Enhanced credibility

Federally-incorporated entities enjoy increased prestige and recognition nationally and in foreign jurisdictions.

Deductible expenses

Entitled to claim a small business deduction and other business expenses such as salaries

Greater access to capital

It offers greater potential to raise money at lower rates than it is for other forms of business. Financial institutions feel more comfortable providing loans to an incorporated company. Some government grants and programs are only offered to incorporated businesses

Cost of Incorporation

The incorporation process can be expensive and time-consuming. In addition to preparing a number of documents fees must be paid to the government for the application, the NUANS Name Search Report and the professional fees for financial and/or legal services.

More Paperwork

A corporation is required to file Articles of Incorporation, bylaws, corporate minutes, certificates of good standing, and other paperwork on a regular basis. As a highly regulated entity, a corporation has added recordkeeping and paperwork requirements.

Increased ``Formalities``

All corporations are required by law to observe a number of corporate formalities, to ensure that the corporation is operating as a separate entity, independent of the business’s owners. These steps include holding regular meetings of directors, keeping records of corporate activity, and maintaining the corporation’s ongoing financial independence.

Tax Liability

The profits from a corporations may be “double taxed.” The company pays taxes on any profits earned and then shareholders who received dividends from the company must pay taxes on those dividends. This may not be an issue for smaller corporations whose owners/shareholders often work for the business itself and are paid salaries (which are tax-deductible for the corporation) rather than dividends.