Corporations
Completion requirements
Corporations are the most complicated form of business ownership. Remember, while it is more complex, it provides safeguards that sole proprietorships and partnerships do not. Read this section to learn about the most common type of corporation, the C Corporation. You'll also learn some important information about purchasing ownership in a publicly traded corporation in the form of stocks.
KEY TAKEAWAYS
- A corporation (sometimes called a regular or C-corporation) is a legal entity that's separate from the parties who own it.
- Corporations are owned by shareholders who invest money in them by buying shares of stock.
- They elect a board of directors that's legally responsible for governing the corporation.
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A corporation has several advantages over a sole proprietorship and partnership:
- An important advantage of incorporation is limited liability: Owners are not responsible for the obligations of the corporation and can lose no more than the amount that they have personally invested in the company.
- Incorporation also makes it easier to access financing.
- Because the corporation is a separate legal entity, it exists beyond the lives of its owners.
- Corporations are generally able to attract skilled and talented employees.
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A corporation has several disadvantages over a sole proprietorship and partnership:
- The goals of corporate managers, who don't necessarily own stock, and shareholders, who don't necessarily work for the company, can differ.
- It's costly to set up and subject to burdensome regulations and government oversight.
- It's subject to "double taxation." Corporations are taxed on their earnings. When these earnings are distributed as dividends, the shareholders pay taxes on these dividends.