A quick glance at the phone book will reveal to any interested party that there are a number of business forms that any business can be given when it is formed. Each of these forms has a variety of advantages and disadvantages. In many situations, the form given to a business is based on the wishes and requirements of the founders. In other scenarios, the only thing taken into account is the liability of the owner and the tax structure.
First of all, it is not necessary to have a large business to make it into a corporation. The majority of new corporations formed are generally small businesses owned by one or two people. It is possible for a business based out of a spare room in a house can be considered a corporation if it is incorporated and structured properly.
Corporations in general are nonhuman entities. They are allowed to exist in the United States because of the various acts that have been passed. These acts allow corporations to exist as well as set out the rules for forming them, the rules for operation, and a variety of other rules that all affect how a corporation is run.
The greatest benefit of the business structure known as a corporation is that it exists entirely separately from the existence of the owners. So this means that the owner of the corporation is completely separate from the corporation itself. They are separate legal bodies. This is the biggest advantage of a corporation and all of the other benefits flow from this one fact.
Because the owners of a corporation are separate from the corporation itself, the liability of the individual owners is severely limited. It is generally not possible to hold the shareholders, basically the owners, of a business liable for their actions if the business has opted for a corporate structure. Technically, shareholders are little more than investors in the business; they have very little responsibility or liability for the actions of the corporation itself.
In addition to being held not liable for the corporation’s actions, shareholders or owners are not responsible for debts. Creditors cannot go after the assets of a shareholder in the event that the corporation defaults on a loan or does something that requires a creditor to come after it. This is a huge benefit in the event that the small business is a start up.
The corporate business structure includes a number of tax benefits as well. First, a corporation can claim deductions for all of the health insurance purchased for the shareholders’ benefit. Also, life insurance can be deducted if it is purchased for the shareholders as well.