Disadvantages

-   Fees. It costs money to incorporate. There are typically four types of fees, including: a fee to file the articles of incorporation with the Secretary of State; a first year franchise tax prepayment; fees for various governmental filings; and attorney fees. But every year tens of thousands of businesses choose to incorporate online without the use of an attorney.

-   Formalities. The proper corporate formalities of organizing and running a corporation must be followed in order to receive the benefits of being a corporation.

-   Paperwork. A huge aspect of the corporate formalities that must be followed consists of paperwork. Reports and tax returns must be compiled and filed in a timely fashion; business bank accounts and records must be maintained and kept separate from personal accounts and assets; records must be kept of corporate actions, including meetings of shareholders and Board of Directors and licenses must be maintained.

-   Disclosure of Names of Corporate Officers and Directors. Most states do not require that names of shareholders be a matter of public record; however, many states require that the names and addresses of corporate officers and directors be listed on one or more documents filed with the Secretary of State.

-   Dissolution. Since corporations have a perpetual existence, states provide a mechanism for dissolving a corporation and liquidating its assets. Dissolution does not happen automatically. A corporation can be dissolved voluntarily or involuntarily. A corporation's officers and directors are charged with responsibility for dissolving the corporation, including gathering corporate assets, paying creditors and outstanding claims and distributing remaining assets to shareholders.

-   Tax Consequences. C corporations have potential double tax consequences-once when the company makes its profit, and a second time when dividends are paid to shareholders. S corporations can mitigate this tax issue.