A common form of corporate organization, corporations have a number of advantages, including permanent life, restricted liability, and the capacity to acquire capital through the selling of shares. However, running a business as a corporation has some important drawbacks as well. We’ll look at five of a corporation’s most prevalent drawbacks in this article. One of the biggest drawbacks of a corporation is double taxes, which is listed in item one. In other words, the firm pays taxes on its profits, and then the shareholders pay taxes on the dividends they get. As a result, the corporation’s and the shareholders’ profits may decline significantly. 2. More red tape: Since corporations are highly regulated entities, there is a lot of paperwork and formality involved. Increased red tape and bureaucracy could come from this, slowing decision-making and making it harder for the business to adjust to shifting market conditions. 3. Limited flexibility: The fact that a board of directors and shareholders frequently oversee corporations’ operations might make them less flexible. In today’s fast-paced corporate climate, this can lead to delayed decision-making and a lack of agility, which can be a serious disadvantage. 4. Expensive to establish: Establishing a corporation involves a lot of formality, such as the drafting of bylaws and articles of incorporation. This can be a costly and time-consuming process, which makes it challenging for small enterprises to function as corporations.
5. Increased scrutiny: Both the public and the government are paying more attention to corporations. This may lead to bad press and reputational harm for the business, which may make it more difficult for it to draw in clients and investors.
The following procedures must normally be followed in order to start a corporation: selecting a company name, submitting articles of incorporation to the state, selecting a board of directors, drafting bylaws, and issuing stock certificates.
C corporations, S corporations, and limited liability companies (LLCs) are the three different forms of corporations. The most typical type of corporation is a C corporation, which is subject to two taxes. S companies and LLCs give their owners some tax benefits and are not subject to double taxation.
Typically, a corporation’s officers, who are chosen by the board of directors, are in charge of running day-to-day operations. While the chief financial officer (CFO) is in charge of managing the firm’s finances, the chief executive officer (CEO) is in charge of managing the overall operations of the organization. Other officials might be in charge of particular departments, such marketing, operations, or human resources.
In conclusion, whereas companies have numerous advantages, they also have some serious drawbacks. These include double taxation, more bureaucracy, fewer options, expensive infrastructure, and increased inspection. Before opting to run their business as a corporation, business owners should carefully weigh these drawbacks.