One advantage of incorporation is insulating the stockholder owners from personal liability for the activities and obligations of the corporation. Subject to certain rare exceptions, a creditor cannot enforce a corporate obligation against individual stockholders, but can only collect from corporate assets. Thus, while a stockholder could lose part or all of his or her investment in the corporation to a corporate creditor, the stockholder's other personal assets are protected. Another advantage of incorporation is that it allows for raising capital by selling stock or corporate bonds. Other types of business organizations typically are limited to raising capital through contributions or loans from their existing owners or through loans from third parties such as banks.
Stockholders elect the members of the board of directors.
The board of directors in turn selects officers and sets policies. If corporation is profitable, its stockholders can receive a return on their investment through the payment of dividends. Dividends must be approved by the board of directors and are taxable to the stockholders as ordinary income. Unless a corporation elects special tax treatment under Subchapter S of the Internal Revenue Code, the corporation's net income is subject to taxation at rates sometimes higher than those applying to individuals. To avoid this double-taxation effect, subject to certain restrictions, a corporation can elect a different tax treatment under Subchapter S of the Internal Revenue Code.