Corporations remain the most popular way in which to form a business.  Corporations provide a number of benefits, including protection from personal liability and asset seizure.  In addition, a corporation can provide you with significant tax advantages.

Corporations

A corporation is a legal entity which is considered separate and distinct from its owners (known as shareholders).  This results in the primary benefit of a corporation, which is that the shareholders are not personally liable for the debts and obligations of the corporation.  For example, if a corporation is subject to a monetary judgement as a result of a lawsuit, assets of the shareholders are legally protected.  This type of protection is not available to businesses operated as a sole proprietorship.

Corporations also provide for certain tax advantages that are not available to sole proprietorships or partnerships.  Such tax advantages inlcude the ability to write-off medical benefits provided to employees, business and entertainment expenses, tax-favorable pension plans, and so on.  However, one disadvantage of a corporation is double taxation.  With double taxation, a traditional corporation (known as a "C-corporation") not only pays a corporate tax on its corporate income, but when the corporation distributes profits (dividends) to shareholders, the shareholders pay an income tax on the dividends.  Yet, double taxation can be avoided if the corporation decides to make an "S-corporation" tax election.  As an S-corporation, the corporation is taxed as a "pass through" entity, whereby corporate profits "pass through" to the shareholders, who recognize the profits on their personal tax returns.  In this way, only one tax is paid, and double taxation is avoided.  test link

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