Question

24) Describe the primary advantages and disadvantages of a corporation in comparison to a sole-proprietorship or partnership.

Answer 1

Advantages:

-- The corporation shareholders are not liable for corporate debts; but in the sole proprietor and partnership the owners are held responsible for business debts

--Corporations enjoy a continuous life. On contrary, a sole proprietorship or partnership would expire upon the death of its directors, shareholders, or officers

-- It is easier to raise money for corporation. It may sell the shares of stock and create various stock types, such as preferred stock, with different characteristics on profit or voting.

-- In a corporation the ownership interests are allowed to be sold to third parties without disturbing the business continued operation. Conversely in sole proprietorship or partnership, it cannot be sold whole and requires tax identification numbers and bank accounts.

Disadvantages

-- Corporation is the most complex business formation which requires loads of paperwork and expenses to set up; while sole proprietorship and partnership are the least expensive, easiest, and most frequently form of business.

-- Tax preparation of corporation is complicated because the business is taxed separately; however it is uncomplicated in partnership and sole proprietorship because all business income is the owner’s income.

-- Corporations have a major demerit of double taxation because of the corporate income taxes to the business as well as the personal taxes to the individual stockholders

-- An employee or shareholder of a corporation need to pay unemployment insurance taxes on the salary, while a sole proprietor or partner is not liable for unemployment insurance