Disadvantages of the Corporate Form of Organization

There are also some disadvantages to consider when choosing the corporate form of organization for a business, including:

  • Double taxation: Corporate earnings are taxed twice, first as corporate income taxes and then again as personal income taxes when the corporation distributes its earnings to shareholders. This can result in a higher overall tax burden for the business.
  • Difficulty in control: Because ownership is typically separated from management in a corporation, owners may have difficulty exercising active control over management actions. This can be frustrating for owners who want to have a more hands-on role in the business.
  • Greater regulation: As a legal entity created by the state, corporations are subject to considerable regulation of their activities. For example, the withdrawal of funds from a corporation may be subject to limits set by law. This can be burdensome and can limit the flexibility of the business.

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