Advantages and Disadvantages of Corporation
Why are corporations so predominant in a market economy? Simply because ids an extremely efficient way to engage in business. A corporation is a legal pennon that can conduct business. Also, the corporation may have perpetual succession or existence,
regardless of how many times the shares of stock change hands. Corporations are hardly little democracies, so their managers can make decisions quickly. and often ruthlessly. which is in stark contrast to the way economic decisions are made by legislatures.·In addition, corporate stockholders enjoy limited liability. which protects’ them from incurring the debts or losses of the corporation beyond their initial contribution. If we buy $1000 of stock. we cannot lose more than our original investment,
Corporations face one major disadvantage: There is an extra tax on .corporate profits. For an unincorporated business, any income after expenses is taxed as ordinary personal income. The corporation . is -treated differently in that corporate income is doubly taxed-first 3.$ corporate profits and then as in individual income on dividends. The double taxation of corporations has been severely criticized by some economists in recent years, although most countries continue to find corporate income a convenient source of tax revenues.
Because efficient production often requires large scale enterprises, with billions of dollars of capital, investors need a way to pool their funds. Corporations. with limited liability and a convenient management structure, can attract large supplies of private
capital, produce a variety of related products and pool risks.
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