Business

The world’s largest companies are formed as corporations. Microsoft, Google and Yahoo are all corporations. These companies are worth billions of dollars and they are what you will always see and hear on a business or stock trading news. Unlike a sole proprietorship or a partnership, a corporation is a business that is recognized by law as a separate legal entity with its own powers, responsibilities, and obligations. The defining feature of a corporation is its legal independence from the people who create it. If a corporation becomes insolvent, its owners and shareholders will not be liable beyond their equity investments in the corporation – creditors cannot go after the stockholders’ personal assets to exhaust their debts. This attribute is called limited liability. A corporation sounds very promising, but before sole proprietors and partners decide to incorporate their businesses, we should first study the following advantages and disadvantages of a corporation.

Advantages

> Limited liability for the owners. Since a corporation is a separate and distinct legal entity, owners of a corporation are only indebted to the extent of their interest in the corporation. This means that the creditors of a corporation can only run after the assets of the corporation and not the personal assets of the stockholders in the settlement of the corporation’s debts and obligations. In other words stockholders enjoy a “shield” from most creditors.

>Ease on the sell and transfer. If the stock of a corporation is publicly traded, owners and investors can sell their ownership interest in a corporation in a matter of minutes through a stockbroker. If the stock is not publicly traded, the stock certificate can be transferred or assigned to another owner by executing a deed of assignment of shares of stock.

>Continuity. The corporation’s power of succession enables it to enjoy a continuous existence. Unlike a sole proprietorship, the death of a stockholder will not...