Corporation advantages and disadvantage
What Are The Advantages And Disadvantages Of Corporations?
Double taxation
Why are corporations so predominant in a market? Simply because it is an extremely efficient way to engage in business. A corporation is a legal person that can conduct business. Also, the corporation may have perpetual succession or existence, regardless of how many times the shares of stock change hands. Corporations are hardly little democracies, so their managers can make decisions quickly, and often ruthlessly, which is in stark contrast to the way economic decisions are made by legislatures.
In addition, corporation stockholders enjoy limited liability, which protects them from incurring the debts or losses of the corporation beyond their initial contribution. If we buy $1000 of stock, we cannot lose more than our original investment.
Corporations face one major disadvantage: there is an extra tax on corporate profits. For an unincorporated business, any income after expenses is taxed as ordinary personal income. The corporation is treated differently in that corporate income is doubled taxed, first as corporate profits and then as individual income on dividends. The double taxation of corporations has been severely criticized by some economists in recent years, although most countries continue to find corporate income a convenient source of tax revenues.
In addition, corporation stockholders enjoy limited liability, which protects them from incurring the debts or losses of the corporation beyond their initial contribution. If we buy $1000 of stock, we cannot lose more than our original investment.
Corporations face one major disadvantage: there is an extra tax on corporate profits. For an unincorporated business, any income after expenses is taxed as ordinary personal income. The corporation is treated differently in that corporate income is doubled taxed, first as corporate profits and then as individual income on dividends. The double taxation of corporations has been severely criticized by some economists in recent years, although most countries continue to find corporate income a convenient source of tax revenues.
