Which of the following is an advantage that corporations provide as a form of business ownership?

If you or one of your employees causes injury or damage to a person or property during a business activity, are you personally liable? And will you lose your house or savings? Are you paying income taxes that you could perhaps avoid? The answers to these and other critical questions depend on how you’ve set up your company’s ownership structure.

That’s why it is important to decide early on how your business’s ownership structure will be set up.

There are many types of business ownership. Here are the most common:

• Sole proprietorship
• Partnership
• Corporation
• Limited Liability Company (LLC)

The choice is yours, but it cannot be overstated that it should be made early and with careful deliberation. Your decision will have an impact across your business, including taxes, liability, ownership succession, and many other factors.

Pros & Cons There are pros and cons to each type of ownership. Here are just a few examples. (adsbygoogle = window.adsbygoogle || []).push({}); Sole proprietorship. This is the simplest form of ownership to set up. However, you will still have to follow local business registration, license, and permit regulations.Advantages. Easy start up. Subject to fewer federal regulations. No corporate taxes. Full decision-making power. Ownership of all business income and assets. Easy to dissolve.Disadvantages. More difficult to raise capital. Unlimited personal responsibility for paying income taxes and business-related debts.Partnership. Going it alone is nice, but sometimes you need a partner or two, someone to share the investment costs or workload, or to provide expertise in areas where you may be lacking. Just be sure the partnership agreement is spelled out in writing, reviewed by an attorney, and formally registered or notarized.Advantages. Easy set up. Proportionally shared taxation, liabilities, responsibilities and workload. Avoids the hassles of corporation/LLC filings. (adsbygoogle = window.adsbygoogle || []).push({}); Disadvantages. Shared profits. Possible disagreements between partners. Owners/partners liable to lawsuits and debts. Taxation issues similar to sole proprietorships.Corporation. Forming a corporation allows you to set up your business as a legal entity that is separate from you as a person.Advantages. Generally, little or no liability for damages or debts regarding the corporation. Reduction or elimination of certain income taxes.Disadvantages. Operating control relinquished to board of directors or shareholders. More frequent and complicated tax filings.Limited Liability Company (LLC). This ownership strategy blends various characteristics of a corporation, a partnership and a sole proprietorship – advantages as well as disadvantages. It is typically more flexible than a corporation and it is well-suited for companies with a single owner. (adsbygoogle = window.adsbygoogle || []).push({}); Advantages. Flexible taxation regulations. Limited liability for some or all acts and debts of the company.Disadvantages. May be more difficult to raise financial capital. Some states (including Pennsylvania) levy franchise or capital values taxes on LLCs. Renewal fees may be high.

Resources

While self-directed research can be productive, we recommend consulting a professional when determining your ownership structure.

Accountants, tax preparers, lawyers and financial advisors can be helpful in this area; just remember that there may be consulting fees involved. And don’t overlook the fact that some choices involve additional paperwork and tax filings that may increase your overall business costs without adding cost-effective advantages.

A helpful booklet, An Entrepreneurs Guide to Starting a Business in Pennsylvania is available from the State of Pennsylvania, and includes a chapter about ownership structures.

Deciding how to form your business will influence many aspects of your business, including how profits and liability are divided, how your business pays taxes and who runs the business. If you are a large business, forming a corporation offers several advantages over forming a partnership or sole proprietorship. Examining the benefits of a corporate structure can help you decide if forming a corporation is the best bet for your business.

A corporation is owned by shareholders, who profit from the company's gains. A partnership is owned by two or more people who divide the business' profits. A sole proprietorship is owned by one person who alone is responsible for losses and reaps profits. A corporation is the most complex form of business and involves the most paperwork and expenses to set up, but it can offer certain rewards that other forms of business do not.

Liability Protection

The biggest benefit a corporation offers over other business structures is liability protection, according to Entrepreneur. Shareholders do not risk losing personal assets because of a company's debts, because corporations are considered separate legal entities from the people who own them. Owners of partnerships and sole proprietorships, on the other hand, are held responsible for all company debts and legal responsibilities, and are subject to losing personal assets if the company goes bankrupt or is caught up in costly legal situations.

Access to Funds

Corporations can more easily raise funds than other forms of businesses, according to the U.S. Small Business Administration. Corporations can sell stock to raise money for business expenses or cover debts. Sole proprietors and business partners, on the other hand, must try to come up with funds on their own or turn to loans or credit programs to raise money. It takes less time and effort to sell stocks than it does to apply for loans or seek out investors for a business.

Tax Benefits

Corporations enjoy some tax benefits that sole proprietorships and partnerships do not. Corporations must file taxes separately from the shareholders. Owners of corporations pay taxes on any salaries, bonuses and dividends they earn from the corporation. However, loopholes exist to ease the burden of paying taxes as a corporation and as individual shareholders. A corporation is not required to pay tax on earnings paid as compensation to employees or shareholders, and it can deduct the payments as a business expense. Also, the corporate tax rate is usually lower than the personal income tax rate. The owners of sole proprietorships and partnerships pay income taxes at regular rates on the profits they earn from their companies.

Which of the following is an advantage of corporations as a form of business ownership?

Which of the following is an advantage of corporations as a form of business ownership quizlet?

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