What are the Advantages and Disadvantages of Incorporation?

Advantages

• Separate legal entity – Independent from its owners and considered a legal entity that may conduct business, own properties, enter into binding contracts, borrow money, sue and be sued, and pay taxes.
• Unlimited life – Stockholders, shareholders, or members are the owners of a corporation, and it is managed by a board of directors. Their death or inability to perform their duties does not affect the continuity of this legal entity; only changes in the company’s charter will enable it to either be extended or liquidated.
• Limited liability – Company owners are only liable for the amount they invested. Creditors and lenders have no claim to the owners’ personal assets for payments owed by the shareholders.
• Easy transfer of ownership shares – Publicly held corporations do not require approval from other stockholders to sell the stocks or shares of individual owners. Stocks or shares can be easily traded in the market, regardless of their volume.
• Competent management – Investors or owners may not directly handle day-to-day business operations. They vote for the board of directors who eventually hire a professional management team.

• Source of capital– Corporations can source funds from selling stocks and issuing bonds.

Disadvantages

• Incorporation costs – It is costlier to go through the process of incorporation than to form a sole proprietorship or partnership.
• Double taxation – Two taxes are remitted, from the corporate earnings and from payments of dividends to shareholders.
• Documentation – Aside from incorporation documents, companies must file annual reports and tax returns, as well as maintain accounting records, licenses, and other important documents