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Corporation is a business structure that is considered as a separate legal entity from the people who own this. In this sense, this business entity can enter into a contract apart from its owners.

Other Basic Characteristics of Corporation

• It cannot be dissolved even if its owners die or leave the business.
• The owners will have a limited liability which means that when the business goes bankrupt, their personal assets will not be liquated to pay off their business debts. However, at least one of them should be a “general partner” who is exempted from the limited liability protection.
• In terms of paying taxes, the corporation pays its income taxes based on its profit or whatever is left after giving bonuses, salaries, and other expenses.

• The law requires corporations to conduct some formalities such as holding regular meetings and keeping financial records.

The Advantage of Corporation Over Other Business Structures

One of the main reasons why businessmen choose corporation over other business structures (such as sole proprietorship and general partnership) is that owners can enjoy limited liability.

With the incorporation of a business, unpaid debts incurred by a corporation will not be shouldered by its stockholders. This means they are not personally responsible for the obligations and liabilities of their business.

When a corporation is facing bankruptcy and its creditors sued it to recover payments, only the business assets will be at risk and not the owners’ personal assets such as the house, property, cars, and jewelry.

Reasons Why People Choose Corporation

Aside from limited liability, some people choose corporation instead of LLC (which also protects the personal assets of businessmen and costs less to manage) because of the following reasons:

• Corporation enjoys lower tax rates in corporate income. This technique, called “income splitting”, allows stockholders to save up to $75,000 every year.
• This business structure attracts key employees and outside investment since it has the ability to issue stocks.
• Ideal for a family business, corporation allows a person to easily hand down their shares to another individual without having to lose their management control and without having to pay gift taxes.
• Some companies require a business to incorporate before signing a contract so that the latter will not be classified by the US Internal Revenue Service (IRS) as an employee.