Although the more recent innovation of Limited Liability Companies has been something of a challenge to the popularity of corporations in recent years, the latter is still a firm favorite way among business owners to protect their own position and defend their home and family from the sensitivities of the business world.
Creating a corporation ring-fences your own money, your own assets and those of your family apart from your business funds and assets. For this reason it is hugely popular, much in the same way as Limited Liability Companies are. However, one thing which is as true in business as it is in life – possibly even truer – is that there is nothing that comes with advantages that does not also bring with it some disadvantages.
In a corporation, the disadvantages can perhaps best be described by the use of an analogy. In creating a corporation, you create an identity for your business, a separate identity from those of the people who make the business. An identity is an interesting thing. Think of a famous actor or a politician in a powerful position. If an actor wins an award, they find themselves inundated with interview requests, offers for bigger, better paying roles and the focus of untold support and adulation. If a politician is elected to higher office, they find themselves in a position of power and influence, able to use their position to make the changes that they dreamt of when they first went into politics.
Then think of what happens if the actor is found drunk behind the wheel of their car. Studios do not want to take their agent’s calls, the lucrative teen heart-throb market is lost and an expensive stint in rehab awaits. If the politician is caught taking bribes, they are likely to be deposed at the next election and stand an excellent chance of never being trusted again. Just as an identity can work in your favor, it can also attract a great deal of criticism. By creating a corporation, creating an identity, there is plenty to be gained. However, association with a discredited brand does a lot of harm to future employment prospects, present profitability and a personal reputation.
There is also some criticism leveled at corporations in general. Chief among these is the belief that giving a collectivist entity the rights and privileges of an independent human being can lead to big problems regarding equality. The corporation, it is said, becomes like a superhuman entity with increased financial power, a measure of legal immunity and even immortality of sorts – if operated correctly, a corporation can continue indefinitely. It is argued that by allowing increased rights to corporations, we encourage a widening gap between not just rich and poor, but between the super-rich and everyone else.
Additionally, there is felt to be an inevitability that, where the owners (who profit most) are separated from the management (who effectively create the profits), the former feel less of a sense of responsibility for the latter. The consequence of this is that the needs of the management are neglected, and the owners – drunk on power, in popular parlance, create the conditions for the demise of their company.
Disclaimer: This article is for informational and entertainment purposes only, and should not be construed as legal advice on any subject matter.