One of the first decisions you make when forming a trucking company is the Corporation Filing your business will take. Will it be a Limited Liability Company, Sole Proprietorship, or Corporation? The answer depends on your preferences, goal, and future growth of your business. Most business owners form corporations because it protects them against financial and legal liabilities. This is because a corporation helps separate owner’s assets and bank accounts from business assets. Corporations Filing provides businesses with many advantages, but it also has its disadvantages. These include expensive corporation filing fees, loss of business control, double taxation if it is a C corporation, and many more. Carefully analyzing the needs of your business will help you decide whether to incorporate it or not. Read on as Global Multi Services discuss the cons of corporation filing in greater detail below.
Extensive Formalities and structure
Corporations are required by law to have a set of standard formalities that governs them. These include keeping accurate records, having a board of directors, holding regular meetings, operate as a separate entity, following the company’s bylaws, and many more. These ensure the company is legally distinct, maintains its status, and runs smoothly.
Expensive Corporation Filing
One of the downsides that come with corporation filing is the expenses. They are one of the most expensive business structures to set up. Corporations are a complex structure, and many filing fees are associated with their formation. For example, in some states, Non-profits corporations must file a separate state tax exemption status to the Internal Revenue Services and pay a registration fee every year. Many states also impose an ongoing fee and an annual report fee on corporations. These fees can be costly for many small businesses.
Corporation Filing Lengthy Application Process
The application process for corporation filing is very lengthy due to extensive paperwork. Filing your article of incorporation with the Secretary of State is easy, but the overall incorporation process is often time-consuming. To establish a corporation, you need to keep details of the organization and its ownership. These include the corporation’s bylaws, board of directors, financial transactions, officers, corporation articles, meetings, shareholders, and other activities. Each state also has its corporate filing requirements and record keeping guidelines for incorporated businesses. Therefore, you need to do research on your state regulations or seek the advice of an attorney to remain in good standing with the state and law.
Corporations like C-corporation face double taxation. This means the business is taxed as a separate entity and the shareholders are also taxed based on the percentage of profit they earned. The only way to avoid double taxation is by operating as a limited liability company or S-corporation.
Distinct Legal Entity
Corporation Filing takes away the control you have over your business. It is a distinct legal entity governed by a board of directors. Corporations also have federal and state rules stating who can serve on a board of directors. The board of directors can vote in other board members and vote out members. They can also take over the business leaving the founder with no say.