A C-Corporation (or C-Corp) is the most common option for setting up a company. It's not the best choice for all business owners, but C-Corporations provide limited liability protection; meaning owners (or shareholders) are not typically responsible for business liabilities or debts. C-Corporations can also offer great tax advantages because of an expanded ability to deduct employee benefits, which can lead to big savings for a company with numerous employees.
Pros and Cons of C-Corp Setup
Pros of C-Corporation:.
Limited liability protection. Owners / shareholders are not typically responsible for any business liabilities or debt.
Self-employment tax savings. A C-Corporation can offer self-employment tax savings, since owners who work for the business are classified as employees.
Unlimited owners. C-Corps can have an unlimited number of owners / shareholders.
Easy transfer of ownership. Ownership is easily transferable through selling stock.
Unlimited life. When an owner becomes ill or dies, the corporation continues to operate.
Raise capital more easily. Additional capital can be raised by selling stock. Venture capitalists are also more interested in C-Corporations because there is more flexibility in making ownership arrangements.
Credibility. Corporations may be perceived as a more professional/legitimate than a sole proprietorship or general partnership
Lower audit risk. Generally, C-Corporations are audited less frequently than sole proprietorships.
Cons of C-Corporation:
The potential for "double taxation." The chief drawback of a C-Corporation is the so-called "double taxation" potential. Profits are first taxed to the corporation, then, when they are distributed to shareholders in the form of dividends, they are taxed again. An S-Corporation can help you avoid double taxation, but there are some limitations.
Complicated rules and paperwork. Corporations are required to hold formal board and shareholder meetings and keep accurate minutes of these meetings. In addition, there are a series of tax forms that may need to be filed with federal, state, and possibly even local governments. The tax forms for corporations can be very complicated and this may require the help of an experienced accountant.
How to Start a C-Corporation
To form a C-Corporation, "Articles of Incorporation" must be filed with the state and all the necessary state filing fees must be paid in full. Upon incorporation, C-Corporations are also required to hold an initial meeting of directors and shareholders, adopt bylaws and issue shares of stock to owners. Let us help you get started >
