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The following is one disadvantage of incorporation: B)potential loss of control by founders

Further explanation

Disadvantages of Incorporation of a Company  are:

  1. Cost. The initial cost of incorporation includes the fee required to file your articles of incorporation, potential attorney
  2. Double Taxation. Some types of corporations such as a C Corporation, have the potential to result in double taxation.
  3. Loss of Personal “Ownership”.  If a corporation is a stock corporation, one person doesn’t retain complete control of the entity.
  4. Required Structure.  When you form a corporation, you are required to follow all of the rules outlined by the state in which you filed.
  5. Ongoing Paperwork. Most corporations are required to file annual reports on the financial status of the company.
  6. Difficulty Dissolving. While perpetual existence is a benefit of incorporating, it can also be a disadvantage because it can require significant time and money to complete the necessary procedures
  7. Lifting of Corporate Veil.  From the juristic point of view, a company is a legal person distinct from its members

Learn more

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Answer details

Grade:  9

Subject:  history

Chapter:  incorporation

Keywords: disadvantage, incorporation, transferable ownership, long life, liability

B) The potential loss of control by founders.

The incorporation of a company involves the taking over of the ownership of a company by persons who were essentially not engaged with the founding of the Company. This might happen due to several factors such as financial constraints, or differences of opinion among the founders or financial losses occurred by the Company.

Further Explanation:

Disadvantages of incorporation include the following: -

Cost- While filing for incorporation of a Company, certain costs will have to be incurred, which includes fees required to file articles of incorporation, which is basically the business information and the registration details of the Company with the State under which it is registered. It also covers potential attorney fees, legal procedures, and paperwork, using the services of an incorporation office.  

Double Taxation- Certain Companies have the potential to result in Double Taxation. Double taxation occurs when both the profits of the Company and the Dividends paid to the Shareholders. Double Taxation is the income tax that is accrued on the same source of income. Double taxation is considered a major disadvantage and is a negative element of the taxation system. It occurs since Corporations are considered separate entities from their shareholders.

Incorporation results in loss of personal control by the founders and are replaced by a board of directors who are elected by the shareholders. The board of directors has to include the personal and economic interests of the shareholders while making decisions with regard to the Corporation. A certain structure and framework are to be maintained while registering the Corporation with the State.

There is a considerable volume of paperwork involved with the incorporation of paperwork that involves registration, securing of a Corporate license, tax records, accounting files and minutes of meetings, while a significant amount of time and money is involved in dissolution.

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Answer Details-:

Level: High School

Chapter: Economy, Corporations, and Trade.

Subject: Economics.

Additional Remarks:

Advantages and disadvantages of incorporation of a Company are constituted within the subject of Economics. Other important themes engaged with this chapter are Utility, Demand and Supply, types of Corporations, Banking, and finance, Loans and types of Markets.

Keywords:

Financial constraints, double taxation, incorporation, loss of personal control, the board of directors, shareholders, registration, Corporate license, tax records.

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