We have previously discussed LLCs and the pros and cons of forming that type of business. Today we will be continuing that discussion by learning all about a C Corp. A C Corp is the most common type of corporation in the United States.
What Is It?
To put it plainly, a C Corporation, or C Corp, is a business that has its profits taxed separately from its owners according to subchapter C of the IRS code. Where both an LLC and an S Corp pass their income through to the owners who are then required to file the business profits and losses on their personal income tax, a C Corp is treated as an independent entity that must be taxed on its own.
Let’s take a look at some of the benefits of a C Corp.
- Limited Liability applies not only to owners, but also to directors, officers, shareholders, and employees.
- Even if the owner leaves the company or dies, the company continues to exist.
- There is a greater degree of credibility with a C Corp than with other types of corporations.
- C Corporations are usually at a lower risk of being audited by the IRS than an LLC or sole proprietorship.
- There can be an unlimited number of stockholders, giving the corporation unlimited growth potential.
- The owner has the option of issuing different classes of stocks to different shareholders. This can be attractive to different groups of investors.
- Certain business expenses can be tax deductible.
As with anything, where there are pros, there will also be cons.
- A C Corp can be expensive to start. There are a number of fees associated with filing the Articles of Incorporation. Corporations also pay fees to the state in which they operate.
- There are more regulations and government oversight with a C Corporation. In addition, there are more complicated tax rules. For example, shareholder and director meetings are required and minutes must be taken at every meeting.
- Unlike an LLC or S Corp, business owners cannot deduct corporate losses on their personal income tax return.
- A C Corp is double-taxed. It is taxed once at the business level, then again at the shareholder level as dividends.
As you can see, there are many similarities and differences between the different types of corporations. It is important that you speak with your business attorney and your accountant to determine what is the best option for you and your business. If you feel that one type of corporation suits your needs best, these advisors can walk you through the next steps of choosing your business name and drafting and filing your articles of incorporation with the appropriate agency.