Final answer:
A corporation is a legal entity that provides significant advantages such as unlimited life, easy transfer of ownership, limited liability, and ease of raising capital, while facing drawbacks like double taxation, higher start-up costs, potential agency costs, and regulatory burdens.
Step-by-step explanation:
A corporation is a distinct legal entity that offers several advantages and disadvantages. Among the benefits are:
- Unlimited life, making it enduring beyond owner or management changes.
- Easy transfer of ownership through the sale of stocks.
- Limited liability, which protects shareholders' personal assets from company debts and liabilities.
- Ease of raising capital through the sale of stock or issuing bonds.
However, corporations also face certain drawbacks:
- Double taxation, where income is taxed at the corporate level and again as dividends to shareholders.
- Cost of set-up and report filing, which can be substantial.
- Often higher agency costs compared to other corporate forms, due to potential conflicts of interest between managers and shareholders.
- Increased regulations and scrutiny from government entities.
In contrast, a sole proprietorship may find it more challenging to raise capital and offers no separation between business and personal liabilities. Corporations benefit from legal protections that limit owners' risks and enable easier access to resources needed for growth and innovation. This has been instrumental in driving industrial growth and job creation.