Starting a Corporation
Consult a Professional Before Selecting a Business Legal Structure
Aug 28, 2008
If your aim is to be successful this is an important step. Take this opportunity to invest your time in researching and learning all that is possible on the various legal issues and structures. Follow the suggestions in this article and visit your local Small Business Administration for further advice.
According to the SBA, “a basic understanding of the advantages and disadvantages of a corporation should be studied." They further state, a corporation is much more difficult to form than a basic sole proprietorship or business partnership. Plus, business owners should check with local government offices on specific details on registering their business as a corporation.
After the corporation application is approved by the government, the business is required to apply for and file a federal identification number.
Here are a few advantages and disadvantages to consider according to the SBA..
Advantages
- The corporation is considered a separate legal entity.
- Liability is limited. Individual owners will not be held responsible for any corporation debts.
- The owners of the corporation buy shares in the business.
- Corporation provide more stability to members. If one partner is ill or dies the corporation will still stand.
- Investors purchase stock in the corporation which contributes to long term
- corporate funding and stability.
- A board of directors and officers manage and make all decisions.
- Board of directors members might have several different backgrounds to add.
Disadvantages
- Corporations are subject to extensive regulation by the local and federal government.
- Corporations dividends affect tax returns of corporations share holders.
- Profits are subject taxation.
- The formation of any corporation is an expensive process and requires professional guidance to incorporate.
- Various taxes are imposed on corporations by government.
"Subchapter S" Corporations
A special corporate entity treated similar to a partnership. Other requirements must also be met.
To review, you should consider the following before selecting your business structure.
- Business field.
- Your long term goals.
- Your short term goals.
- Will you seek investors.
- Startup cost under different structures.
- The legal structure that will fit your business long term.
In conclusion, the Small Businesses Administration recommends business owners should always seek professional advice when selecting the legal structure suitable for their business. Although, most entrepreneurs start with a sole proprietorship, which is easiest to start, they should still consider the advantages of a corporate entity to insure long term success. When considering your basic business structures always revue the advantages and disadvantages of the common business structures which include sole propriertorship, business partnerships, and of course the corporation. If you would like further information on business structures or small business in general consult a professional or visit your local Small Business Administration Office. The SBA is also online at www.sba.gov/. They have a wealth of information to share with you.
