Advantages of Corporations
There are definite pros and cons to corporations as a business entity choice. In this article, we take a look at the advantages and how they can help your business.
The single biggest advantage to the corporation is the concept of liability protection. The corp is considered to be an individual person in the eyes of the law. As strange as that might sound, it provides you, the owner, with protection. The only thing you usually have at risk is your capital contribution. Let's say you buy $10,000 worth of shares in Google. Google then gets sued for something and goes out of business. You lose your $10,000, but the creditor cannot come after you for anything other than that amount.
Another advantage is the ability to trade shares. Many businesses fall apart when a key person dies. Transferring an LLC interest from a parent to child, for instance, can be difficult. Doing it with shares of a corporation is usually not. You have to comply with the securities laws in the state in question, but it can always be done. You can even have the corporation buy life insurance to pay for it in certain situations.
The passing of the business from one generation to the next raises another issue. A corporation can run forever. This is because it is an independent entity. Consider Microsoft. Bill Gates played a huge roll in turning the start up into a monster company. He has now left the entity and eventually will pass away. When that happens, Microsoft will continue to exist and run. It and all corporations are independent of the individuals that start them and can outlive them with ease.
Finally, what if your business goes big? What if your small idea turns into a huge hit? Well, you are going to want to go public. By this, I mean you are going to want to have the shares of the corporation traded on one of the various stock exchanges. You, of course, will own a huge number of those shares and be wildly rich. For this to happen, your business must be held as a corporation. LLCs, partnerships and other specialty entities cannot go public.
The above represent the biggest, clearest advantages of corporations when compared to other entities. You can see why so many large companies choose them as their business entity.