1. Money
You can opt-out at any time. Please refer to our privacy policy for contact information.

Disadvantages of Forming a Corporation

You Cannot Personally Own a Corporation and Could Lose Control of the Business

By

Lots of Rules to Follow

There are many standards required by law on how a corporation governs itself. Corporations must have a board of directors, hold meetings at determined intervals, and keep certain records. If a corporation sells stock or has a membership, there are many other rules that apply.

The Number One Disadvantage of Forming a Corporation

If your business is your idea and your passion in life, it is important to understand that you cannot personally own a corporation. The corporation is its own legal entity that is governed by a board of directors.

There are federal and state rules and regulations that dictate who can serve on a board of directors. In most cases, family members and spouses cannot serve on a small corporation’s board at the same time.

 

It is possible, that even if you started the corporation, a board could take control of the business and leave you out in the cold. A board often has the power to fire (even the founder) and to vote other board members off the board.

 

If you need to maintain total control of your business you should give first consideration to another form of business structure.

 

Advantages of Forming a Corporation: Corporations offer limited liability risks to their owners (shareholders) and in most corporate structures, shareholders are not personally liable for the debts and other liabilities (including legal) for the business.

 

Corporations also offer businesses tax benefits that are not given to sole proprietors.

 

Starting a business is a big commitment of time, resources, and money. Before deciding upon the type of business to form, it is important to weigh all the pros and cons of each business structure.

©2014 About.com. All rights reserved.