Disadvantages of Incorporating

Disadvantages of Incorporating

Even though there are several advantages to incorporating your business, there are also additional requirements that must be met by the business owner, which some consider disadvantages. The following are some of these requirements.

Extra Tax Return and Annual Report

A corporation is required to file its own tax return. This is a bit longer and more complicated than the form required for a sole proprietorship or partnership. Additional expenses for the services of an accountant may be required. Typically, a corporation must also file a simple annual report with the state (which lists names and addresses of officers and directors) and pay a fee.

Separate Records

The shareholders of a corporation must be careful to keep their personal business separate from the business of the corporation. The corporation must have its own records, keep minutes of meetings, and keep all corporate money separate from personal money.

Extra Expenses

There are additional expenses in operating a corporation. People who employ an attorney to form their corporation pay a lot more than people who form a corporation on their own. Also, in some states, a shareholder may have to pay unemployment or workers' compensation insurance for him- or herself, which he or she would not have to pay as a sole proprietor.

Checking Accounts

Under federal law, checks made out to a corporation cannot be cashed by a shareholder. They must be deposited into a corporate account. Some banks have higher fees just for corporations.