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2.3a Advantages

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(a) Limited liability of shareholders. Shareholders’ personal assets are separate from the business and cannot be seized to pay outstanding business debts incurred by the corporation. There are exceptions, but these relate primarily to issues of fraud.

(b) Flexibility for tax planning. Various tax advantages are available to corporations that are not available to partnerships or proprietorships. Tax planning must be undertaken with the help of a professional accountant.

(c) Corporate management flexibility. The owner or owners can be active in the management of the business to any desired degree. Agents, officers, and directors with specified authority can be appointed to manage the business. Employees can be given stock options to share in the ownership, which can increase their interest and give them an incentive to make the business work.

(d) Financing more readily available. Investors find it more attractive to invest in a corporation with limited liability than to invest in a business whose unlimited liability could involve them to an extent greater than the amount of the investment. Long-term financing from lending institutions is more readily available, since lenders may use both corporate assets and personal guarantees as security.

(e) Continual existence of corporation. A corporation continues to exist and operate regardless of the changes in the shareholders. The death of a shareholder does not end the corporation. Continual existence is also an effective device for building and retaining goodwill.

(f) Ownership is readily transferable. It is a relatively simple procedure to transfer ownership by share transfer unless there are corporate restrictions to the contrary.

(g) Draws on expertise and skills of more than one individual. As in a partnership, more partners or shareholders contribute diverse talents. However, a corporation is not required to have more than one shareholder.

Start & Run a Coffee Bar

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