question.jpgIn Business Law

What are the disadvantages of setting up a corporation?

As opposed to other business forms, such as partnerships or LLCs, corporations are more expensive and complicated both to initially setup and to maintain. This is because state corporate laws have many rules and formalities which corporations must follow, including requirements that corporations makes various filings and fee payments. The corporate form also provides you with less flexibility in how you can distribute your company’s profits and losses (as opposed to LLCs, which generally allow you to distribute however you would like).

Another costly disadvantage to corporations (which LLCs share as well) is that many states require your business to get a license, even if the corporation is actually located in another state, if you are going to do business in that state. Obviously, this can become very costly for corporations intending to do broad, nationwide business. This same requirement does not generally apply to sole proprietorships or partnerships.