Identifying which business structure you want to use in a start-up seems like an easy choice. However, the wrong choice can cost you in the long run. The most popular company formation choices are S corporations, C corporations and LLCs. All have their benefits and disadvantages. Here is what you need to know about C corporations.
What is a C Corporation?
A C corporation, or C-corp, is a business legal structure that allows the shareholders of a company to be taxed separately from the business entity. C-corps limit the liability of investors and company owners due to that separation. Unlike LLCs, shareholders only are liable for the money they have invested in the company.
What Are The Benefits of a C Corporation?
C corporations are the most common business formations due to their flexibility and limited liability for its owners. There are many more benefits to a C-Corp including:
- It is not a pass-through entity. This means that the business’ net income is taxed at the corporate level before it is distributed to the shareholders.
- Depending on the income of the business, the corporate tax rate could be lower in a C Corporation.
- C-Corps are subject to significant tax deductions – even if highly profitable. For example, the owner and employee salaries are tax-deductible. Other tax breaks include:
- Building Repairs and Maintenance
- Bad Debt
- Profit-Sharing Benefit Plans
- Charity Donations
- You can choose to take the company public and issue stock or stock options
- C Corporations must have a board. The board continues to run the company in the event of the primary shareholder(s) leaves.
What Are The Disadvantages of a C Corporation?
While there are many benefits to a C Corporation, the creation can be complicated. Unlike an LLC, a C Corporation will likely need financial, tax, and business legal professionals to set up and maintain it. Also note that under a C-Corp, there is double taxation. That means that if you issue dividends to shareholders, the business will have to pay taxes on the profits and personal shareholders will also have to pay personal taxes on those dividends. These taxes can be offset by providing tax shelters for profits through better health benefits, bonuses or even higher salaries.
Call on a Trusted Corporate Attorney
Regardless of the business, you need an experienced attorney that understands the ins and outs of business structures. From company formation to business litigation, the attorneys at Cipparone & Cipparone are here to assure that your business is safe from liability and set up for future profitability.
**This blog is for general informational purposes only. Cipparone & Cipparone, P.A. does not distribute legal advice through this blog. As such, this blog does not constitute legal or other professional advice and no attorney-client relationship is created between the reader and Cipparone & Cipparone, P.A.