What Is a Disadvantage of the Corporate Form of Business Entity?

By Heather Frances J.D.

Compared to other business entities, corporations offer many advantages, such as liability protection and ease of transferring ownership shares. Though corporations are very common, a corporation may not be the best structure for every situation, and it does have some disadvantages.

Cost and Paperwork

Corporations require paperwork, including documents like articles of incorporation and annual reports that must be filed with state agencies. Thus, they can be more expensive to start up than other types of business structures. Depending on state law, corporations generally must keep records of annual meetings, share ownership and other corporate formalities. Compared to other business entities, a corporation's record-keeping can be more of a hassle.


In some cases, corporate earnings are double-taxed, meaning they are taxed at the corporate level when the business earns the income, and then taxed a second time at the individual level when profits are distributed. To avoid this double taxation, businesses can be structured as S corporations, which are smaller corporations that are taxed differently than regular C corporations. In an S corporation, earnings flow through to the tax returns of the individual shareholders rather than being taxed at the corporate level.

Ready to incorporate your business? Get Started Now
Ready to incorporate your business? Get Started Now
What Is the Purpose of an LLC?


Related articles

Corporation vs. Officer vs. Owner

A business that operates as a corporation generally drafts bylaws – a document that governs all aspects of the company. Commonly, the bylaws will provide the limitations on the type of transactions the corporation can engage in, the rights of owners, the role of the board of directors and how the business will be managed by officers.

Incorporating Vs. LLC

One of the most important initial decisions in starting a business involves deciding what type of business entity your new venture should be. Two options are corporations and limited liability companies, or LLCs. There are distinct advantages and disadvantages to each type with respect to personal control, taxation and personal liability.

What Forms Do I Need to File for an S Corp?

An incorporated business is automatically designated by the Internal Revenue Service as a C corporation for income tax purposes. However, certain smaller corporations can elect to be taxed as S corporations without forfeiting the liability protections that the corporate structure affords to shareholders. Making the initial election requires filing an IRS form. Once S corporation status is granted, the tax forms the corporation must file annually will change.

LLCs, Corporations, Patents, Attorney Help Incorporation

Related articles

Advantages & Disadvantages of a Limited Liability Company

A limited liability company, or LLC, is an entity that offers both advantages and disadvantages to a business owner. ...

Advantages & Disadvantages of LLC Vs. LLP

A limited liability company is owned by members and is a mix of the features of a corporation and partnership; the ...

What Does Incorporated Mean in Business?

When creating a new business, the owner can structure the business in a number of ways that best suit his preferences ...

Can You Fill Out a 2553 Before the Articles of Incorporation?

A business entity that wishes to become an S corporation must file Form 2553 with the IRS. However, before a business ...

Browse by category
Ready to Begin? GET STARTED