BUSINESS DISADVANTAGES OF THE CORPORATE FORM

Articles In This Section:

· Form of business and financing

· BUSINESS ADVANTAGES OF OPERATING AS A SOLE PROPRIETOR

· BUSINESS DISADVANTAGES OF OPERATING AS A SOLE PROPRIETOR

· BUSINESS FINANCING

· WHAT TYPES OF BUSINESS LOANS

· LOANS FOR THE BUSINESS

· A LINE OF CREDIT FOR THE BUSINESS

· How a Sole Proprietorship is Taxed

· BUSINESS ADVANTAGES OF THE PARTNERSHIP FORM

· BUSINESS DISADVANTAGES OF THE PARTNERSHIP FORM

· THREE RULES AS BUSINESS PARTNERS

· BUSINESS TAXATION

· BUSINESS CORPORATION

· BUSINESS DISADVANTAGES OF THE CORPORATE FORM

· BUSINESS CORPORATE FINANCING

· BUSINESS STOCKHOLDER ELECTION TO REPORT CORPORATE INCOME

· MAKING THE BUSINESS ELECTION

· HOW THE BUSINESS ELECTION IS LOST

· BUSINESS ADVANTAGES AND DISADVANTAGES OF STOCKHOLDER REPORTING OFCORPORATE INCOME

More governmental control than any other business form.

More taxation requirements than any other business form, e.g., filing fees, excess profits tax, excise taxes, etc.

Income tax levied upon corporate profits and, in addition, upon other property when passed as dividends to stockholders.

Difficulty of expansion into other states. A corporation is often severely burdened by formal legal requirements of registration and taxation for doing business in states in addition to its state of incorporation.

Your corporate charter must be a carefully drafted document. The corporation is strictly limited in the exercise of its powers to those stated in its charter. Consult with your attorney upon incorporating. Draft a charter with the broadest possible corporate powers even going beyond those powers you might reasonably anticipate your corporation will need currently.

If you are to be a director of your company, remember you are acting in the capacity of a fiduciary. That means your actions are strictly governed by the corporate charter and by-laws of the corporation. If you wish to deviate from these in any way take care to see that they are amended. In your fiduciary capacity you should, above all, be certain not to use your position to obtain any unfair advantages or to make secret profits or commissions out of any business transaction engaged in by your corporation.

You should not unlawfully borrow money from the corporation or authorize loans to other directors, officers or stockholders.

Be sure that corporate dividends are paid only out of profits and that the capital structure of the corporation is not impaired.

Suppose you have a disagreement with the action taken by the majority of directors. You must explicitly note your dissent upon the minutes of the corporate records. Otherwise you will be liable along with the other directors for any action taken.

Financing—Use of Debt and Equity Financing. A corporation can raise capital through the use of debt financing (bonds) or equity financing (stocks). Sometimes debt financing is preferable. A corporation is allowed a deduction for interest paid on bonds. But there is no deduction for dividends declared on stock. The corporation can also usually pay off the bonds without any tax liability to the corporation or the bondholders. But if you redeem stock without changing the relative interest of shareholders, your payments might be taxed as dividend distributions. This same theory does not apply to bond redemptions.