Corporations take more effort to set up than sole proprietorships. You must file papers with the state of Alaska to bring it to life. The state then gives you a certificate of incorporation which is like your corporation’s birth certificate. The corporation is considered a separate person so long as you follow a number of corporate formalities to keep it alive.
As a separate person, the corporation may enter into contracts, own property, be sued, and do business. This means that your personal assets such as your home, savings, cars, etc. are protected from the acts of the corporation so long as you follow the formalities to keep it alive.
But the big downsides of corporations are: double taxation (the corporate tax and your individual tax—although the tax to the corporation is often zeroed out); less protection from creditors than an LLC; double taxation when you sell the business; and, the burden of keeping up with corporate formalities.
Should you set up a corporation? Let’s just make this easy. Generally if you expect to go public, you’ll probably need a corporation. You’ll also want to check with your CPA to see if some of the corporate tax advantages apply to you such as retained earnings, tax-favored fringe benefits, and fewer restrictions for claiming losses. But most of these benefits apply to larger and very profitable companies, so if you’re just starting up, a corporation doesn’t make much sense. Which brings us to LLCs.