&#62; 2) Small businesses just don't spend that much on administrative overhead.<p>I may not be a typical case, but this is false for my business.<p>I am the founder and sole employee, although I have used contractors for jobs before.<p>My first year, I spent at least 2-3 hours / week on average learning and dealing with the accounting and legal needs for having a corporation. There are a lot of agencies and each have their own rules. Just keeping up with all the tax law changes is a fair amount of work, nevermind the risk that you've misunderstood / forgot something.<p>Obviously, it wasn't my full-time job, but it took a big enough chunk of my time (and therefore potential income) to be a real hassle.<p>The next year, I outsourced much of it and ended up paying around $2,000 (not including the actual taxes and license fees). I realize that isn't much, but for a one-person entity that's a non-trivial amount of money. (yes, cost of doing business, blah, blah, blah ...)