What are the primary advantages of the separate legal status of a corporation?

Structure

Corporations have a required set structure, which helps the business to run more efficiently. Corporations are owned by shareholders who elect a board of directors to support their interests and run the corporation. “Each group has its own set of clearly-defined roles and responsibilities within the corporate framework,” reports Find Law.

Financial Aspects

The well-known and understood stock structure of corporations makes them very attractive to investors of all levels. That same structure allows you to entice new employees by offering them ownership of the company through either stocks or stock options. Corporations exist separately from their owners, so stocks can be freely traded in the market, which means that ownership may constantly change hands, spreading over a large number of people. When a corporation needs to raise capital, they have the option of selling stock in the company.

Liability and Taxation

“Since a corporation is a separate and distinct legal entity, owners of a corporation are only indebted to the extent of their interest in the corporation,” according to Business Accent. This means that shareholders are not personally liable for any company debt and creditors cannot go after their personal assets for business debts. Similarly, shareholders only pay taxes on any profits paid to them as salaries, bonuses or dividends and the corporation itself pays corporate rate taxes on any additional profits at the lower corporate rate.

Perpetual Existence

The main advantage of a corporation is its perpetual existence. Since the corporation is a separate legal entity from any of its owners, it does not dissolve when one owner leaves. If a shareholder dies, the company may transfer her shares in the same way as any other property, and the corporation is not negatively affected. This also allows a shareholder to disconnect from the corporation by selling all of her shares without ending the corporation. Keep in mind that when deciding to dissolve a company there are procedures and paperwork required.