Sun 06 Sep 2015 | By:

Pros and Cons to Forming an Alabama Corporation

Pros and Cons to Forming a Corporation

One of the first steps  if you’re planning to start a business in Alabama is to incorporate it. This is important because you are shielding yourself from legal liabilities and ensuring its continuation.

There are a number of business structures that you can choose from when you incorporate your business – including forming a Corporation. If you want to start an Alabama Corporation, you need to know its pros and cons first. Review this guide to understand them.  After that, I’ll show you how to get started.


Pros to Forming a Corporation in Alabama

1) Business owner is protected from legal liabilities.

Once your business becomes a corporation, you are safe from many legal liabilities.  In the event that these problems come up, you will not be held personally responsible because your business is technically a seperate entity.

2) Easy to find investors and convince credit unions.

If you’re trying to gain funding or capital for your business, there’s no better way to attract investors than to incorporate it. When you have an Alabama Corporation, you will be able to issue stock which is very appealing to many investors.

3) Well-defined corporate structure.

In an Alabama Corporation, the power structure is well-organized and well-laid out. From the shareholders, board of directors, and management team to the staff – everything is arranged well. Roles, responsibilities and job descriptions are clearly defined.  This enables your business to achieve stability and operate smoothly.

4) Gives you the opportunity to enjoy tax benefits.

Incorporating your Alabama business under a Corporation provides you with a host of tax  benefits.  Additionally, forming an LLC or Corporation will put you in a better situation with the IRS instead of Sole Proprietorship or other business structure.

5) Perpetual existence is established.

Once your Corporation is formed, it will continue to exist long after you are gone from the company.  By incorporating your business, you are making sure that it continues to operate- a term called perpetual existence.

6) Builds your business’s credibility.

Having an Inc. or LLC connected to your business name adds to your company’s overall credibility.  Customers will trust and buy from you more readily because they know you are a legitimate business.

These are just some of the advantages if you form an Alabama Corporation.  If you want to see if your business would do well as a corporation, you can consult an attorney or (if you want to save money) use a business entity comparison chart.


Cons to Forming a Corporation in Alabama

1) The process is time-consuming and costly.

Incorporating your Alabama business requires time and effort. Unless you have an online incorporation service handle the process for you, there is a lot of paperwork to prepare and documents to file. Aside from being time-consuming, you also need to have the money to pay for all the filing fees, state taxes and attorney fees.

2) May discourage creditors because of you have limited liability.

Despite how attractive a Corporation may be to investors and creditors, they are also cautious to trust you by investing their money completely. Because of the shield of limited liability, they will be on the hook if things go south.

3) Dissolving a Corporation can be complicated.

This is one of the major disadvantages of forming a Corporation.  In the future, if you want to dissolve your Corporation, it will be difficult to do so.  While it’s not impossible, it is time consuming and will involve extensive paperwork to prove why the Corporation needs to dissolve.  Without the proper supporting documents, you will not be able to close your Corporation, and it will be subject to fines every year. Despite the downsides, forming a Corporation has far more advantages than disadvantage.  At the end of the day, you’ll be the one deciding, so choose wisely!

About Liesha Petrovich

Liesha is a small business owner of 20 years, host of Startup Savant, the owner of a karate dojo in Maine, and creator of Work Mobly. During free time she's with her family and working on a Doctorate in Entrepreneurship.