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September 25, 2007Corporations have an easier time finding financing than partnerships and sole proprietorships because they offer a formal structure to investors and lenders. Investors know how much they own of a corporation by the number of shares they purchase and lenders know that the corporation’s formal structure requires more checks and balances than the other business structures.
Financing issues for corporations
- Gains and losses are allocated proportionately to percentage ownership in the business. Some corporations pay monies to the owners and directors as salaries.
- Owners are not personally liable for debts or lawsuits (limited liability protection). However, the owners would be liable if they personally guarantee a loan or do not comply with the corporation’s management requirements.
- Business owners need shareholder approval for major investments or business decisions.
- Loans for a small business are affected by the owners’ or directors’ credit score.
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