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business
Neha PalTop Contributor
Content Writer|| ENGINEER||
Asked a question 2 years ago

What are the disadvantages of corporations?

Where am I?

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Double Taxation

  • Corporations are subject to double taxation118. They are taxed on a corporate level, and shareholders who receive dividends are then taxed on a personal level.
  • You'll also have to pay self-employment taxes if you're an employee of the company.
  • Paid dividends cannot be deducted from taxable income.

Expensive to form

There are many filing fees associated with forming a corporation. Nonprofits must file even more paperwork because they must apply to the IRS for tax exemption status (minimum $750 to apply). In a few states, nonprofits may also have to file separately for state tax exemption status. Even small fees can add up if you are cash-strapped already.

Complicated to Form

Corporations must file Articles of Incorporation with the state they are incorporating in for which states charge different filing fees. They may also need to file ​bylaws, which may require the help of an attorney to write.

Management

You cannot own a corporation. This means a board of directors will be making the decisions. The board of directors could potentially remove you from company. The management team could ignore owner oversight if no one has a majority interest in the company.