Disadvantages of Corporations
The business world has changed. During earlier years, sole proprietorship ruled this world. However, due to the different limitations of this type of ownership, many businessmen reverted to partnership or corporations. Incorporated businesses will undoubtedly grow faster than sole proprietorship or partnership. There could be many advantages for corporations; however, there could also be many disadvantages.
The first one of these disadvantages is heavy taxation; corporations actually suffer dual taxations. The first tax is taken for the corporate income taxes. The second one comes from the stockholders. These stockholders are subject to personal income taxes
Corporations also suffer from greater government regulations compared to solely owned businesses or partnerships. The business having a legal personality separate from its owners must obtain certain government authorizations for all of its actions.
Another obstacle in this type of ownership would be the costly formation. Corporations, being a legal person itself actually requires legal counseling during its formation, this could be very costly; especially if it is to be added to all other organizational costs.
The last negative thing about corporations is that the management is separate from the owners; hence, if the management’s actions prove dissatisfactory to the owners, the stockholders would have a hard time enforcing change in the management.
These are the many disadvantages of corporations; however, most of the time, the advantages of corporations outweighs these disadvantages.
admin on August 22nd, 2008 | File Under Business | No Comments -