Question

Write 500 words

Please identify and explain two advantages for a commercial enterprise to do business as a corporation.  

Please identify and explain two disadvantages for a commercial enterprise to do business as a corporation.

Answer 1

A commercial enterprise is a business entity that provides goods and services and there are many advantages for the business if they do business as a corporation. The main advantage of doing business as a corporation includes the personal asset protection provided by corporation. In other forms of business like sole proprietorship and partnership, the owners have the liability for the company’s debts and may lose their personal assets to close the liabilities. But the owners of the corporation have limited liability in case of debts and the personal assets are protected and will not be recovered in case of business liabilities. The owner’s liability is limited to their investment in the corporation. Due to this advantage more and more investors prefer to invest in corporations. Another advantage is that it is easier for the business to raise capital for the business by doing business as a corporation by selling stocks and bonds. Other forms need to raise the fund on their own through loans, attracting investors and other methods which takes more time. But by doing business as corporation, the firm can raise fund within less time by selling the stock. The company can take a number of investors based on the form taken by the corporation. An S corporation’s number of investors is limited to 100, while a C Corporation can have unlimited investors. When the number of investor increases, more capital can be raised.

The main disadvantage for a commercial enterprise to do business as a corporation is the higher expense involved in starting a corporation. A corporation has a complex structure which makes it more costly and attorneys charge more for forming a corporation. There is more paperwork involved in the case of corporation including the articles of incorporation, annual reports, share register and other reports which also increases the expense. Another disadvantage is lack of ownership as the shareholders become the owners of the corporation. The owners of the commercial enterprise will not have control over the business once it is converted into a corporation. The shareholders possess the voting rights and they can determine the board members. The board of members governs the corporation and the owner of the commercial entity may not have any control over the corporation. The corporation needs to follow the federal and state laws while determining the board of directors which do not allow the owner to exercise much control on the board. The shareholders can sell the stock at any time and the ownership changes accordingly.