A corporation is treated by law as a physical entity. Its life is separate from those of its owners or stockholders. The question of whether or not to incorporate is not easily answered but it is one that should not be ignored by growing businesses.

One of the main advantages of incorporating is that there is limited financial liability for the owner. The firm is responsible for its own taxes and debts. If the firm is sued for any reason, if debts are unpaid or the firm becomes bankrupt, the liability of the owner is limited to the value of the personally held stock. Personal assets are not at risk.

For the small business owner, other advantages, such as the ability to transfer ownership in the form of stock shares, may be less important. A small corporation that is successful creates its own financial stability, without dependence on individuals. It may also be easier to reaise capital, to borrow money and to get merchandise and service on credit. It may also be easier to attract specialized management and to change management as may be required.

The chief financial drawback of the incorporating is double taxation. The firm pays profit taxes, and the stockholders who in the case of the typical small corporation are likely to be the operators of the business, pay income taxes on the dividends they receive. That can be a stiff penalty.