Records have to be kept to document decisions that are made by the board of directors. In small, closely held corporations operations are more informal, but record-keeping is not eliminated entirely. Officers of a corporation can be liable to stockholders for improper actions. Liability is generally limited to stock ownership, except where fraud is involved (ibid).
The most important attribute of a corporation is that shareholders in the company are not liable for corporate debts. This is the probably the most important attribute of a corporation. In contrast, in a sole proprietorship or a partnership, the owners are personally responsible for all of the business debts. If the assets found in the sole proprietorship or partnership are not adequate to satisfy the debt, creditors can go after each owner's personal assets, such as their bank account, house, or other property to make up the difference of what is owed. In the case of a corporation running out of funds, the owners are usually not liable (ibid).
Incorporating also has many other advantages and disadvantages. Corporations offer self-employment tax savings. For instance, the earnings from a sole proprietorship are subject to self-employment taxes. Currently, these can amount to a combined 13.3% on the first $106,800 of a person's income. In a corporation, only salaries (not profits) are subject to taxes such as this saving the owner thousands of dollars per year. Additionally, corporations have continuous life. Unlike...
Further, corporations make raising money easier. This is because it can sell shares of stock or create new types of stock. For instance stocks such as preferred stock have different voting or profit characteristics. Additionally, investors can rest know for sure that they are not personally liable for corporate debts. Finally, transferring the ownership interests of a corporation is easier. Ownership interests in a corporation can be sold to third parties. This is done without disturbing its continued operation of the business, while in a sole proprietorship or partnership, it cannot be sold whole. Rather, each of its assets, such as licenses and permits have to be individually transferred. Also, new bank accounts and tax identification numbers are required making transfer more difficult (ibid).
Conclusion
Again, there is no right or a wrong decision regarding proprietorship, partnership and incorporation as business strategies. The business plan and decisions about the type of business will dictate the type of organization required.
Works Cited
Gerstein, J. "What Are the Advantages and Disadvantages of Sole Proprietorship, Partnership and Corporation." 247advisor.com. 24/7 Advisor, n.d. Web. 20 Oct 2011.
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"Incorporation." Legalzoom.com. Legalzoom, 2011. Web. 20 Oct 2011.
