Free Essay: Pros and Cons of Corporations
A corporation is a more advanced and complex business structure compared to the rest. It involves coming up with a board of directors that performs the oversight function for the company. Under the board of directors there is a team of managers that implements all the strategies developed by the board of directors.
Corporations have advantages and disadvantages. There are some businesses that can only work well if run as corporations. The businessman has to understand these factors in order to come up with the best structure for his or her business.
Pros of corporations
As a legal entity as well as a business structure, a corporation has a number of advantages over other business structures. In this kind of business structure the personal assets of the shareholders are protected. The stakeholders and other people who have acclaim to the company will not lose their assets in case a corporation goes down. The company’s debts and obligations will only have an impact on the financial investment that the shareholders made and not affect in an y way their personal assets.
Another advantage of corporations is that they are risk averse. Sole proprietorships can easily crumble down because the financial status of the owner(s) affects that of the company. This is because the income can be easily manipulated by few individuals. The present of a very definite structure makes it a little harder for misappropriation of funds and other improper practices that can lead to the failure of a business.
Since they are perceived as less risky in comparison to other forms of business structures, corporations attract more financial investment. Financial institutions are more likely to invest in a corporation than a sole proprietorship. It is therefore very important for businessmen to critically consider all eventualities before settling for any particular business structure.
Corporations do not cease to exist with the exit or death of all or one of the members of the board of directors. The structure is solid and the ownership can smoothly change from one management to another. This is not the case with companies that solely rely on the management of one or a few individuals.
The Cons of corporations
One of the advantages of a corporation is that it is not easy to set up. The structure is so complex and it cannot be quickly developed in a short time. A lot of time has to be invested in selecting the right people for every level of management.
There is a lot of bureaucracy involved in setting up a business as a corporation. The businessman will need to file papers with the state. The rules vary from one state to another but the bottom line remains, setting up a business as a corporation requires a lot of regulations. For this reason only, most businesses that are starting small prefer to adapt other structures.
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