Benefits of a C Corporation: Everything You Need to Know
The C corporation is one of the most used business structures by owners starting a new business. 3 min read
Benefits of a C corporation have enticed business owners for over 500 years and promoted economy. However, to take advantage of the benefits, you have to know them and all of the ways they are used to benefit business owners. The benefits of a C corporation are below.
What is a C Corporation?
The C corporation is one of the most used business structures by owners starting a new business. C corporation benefits are compelling enough to make it a favorite for more than 500 years. The attractive features of the C corporation are sole benefits of the C corp. Some of the benefits are below:
- Perpetual existence;
- Enhanced business credibility;
- Limited liability;
- Unlimited potential for growth through stock sales;
- No shareholder restrictions or limits;
- And, specific tax advantages.
These compelling benefits have enticed many businesses to incorporate as a C corporation throughout the years.
Benefits of a C Corporation
Corporations also have perpetual existence as a business entity. Under most state governments, a business is in existence until the company owners dissolve the business. Another advantage is the separation of corporate management and stock ownership. This means that the corporate shareholders do not have rights to manage the day-to-day management tasks of the corporation.
Shares of stocks are also transferred freely between shareholders unless a buy-sell agreement restricts the transfer. Unless the corporation has specific bylaws governing the restriction of stocks, there are no restrictions for shareholders of corporate stock.
When it comes to the legal responsibilities and liabilities of C corporations, you pretty much know what you need to do to comply because these entity types have been around for hundreds of years. Although the operation of a C corporation is often more involved there are planning opportunities you can take advantage of throughout the life cycle of the business.
Taxation Benefits of a C Corporation
C corporations offer businesses a good choice because they give businesses who are not engaging in personal services, also known as PSCs a more favorable tax rate. Non-PSCs companies may even use a fiscal calendar year if they choose. C corporations are a good fit for businesses selling products; those with a storefront and on-site employees and businesses who have a warehouse with inventory.
When it comes to tax audit liability, C corporations do not engage in passing through their losses and profits, so there is less of a potential for audits by the IRS. Benefits may be available under Section 1202 of the IRS tax code that allows up to 50 percent of qualified gains from small business stock to be deducted from income. The remaining balance is taxed at a rate of 28 percent making the effective rate 14 percent. Under Section 1244, the IRS allows business owners to take a full deduction of failed business ventures at a maximum deduction of $100,000.
Disadvantages of a C Corporation
There are some disadvantages of setting up your business as a C corporation. They include:
- More start-up expenses
- Double taxation;
- More regulations and formalities to follow;
- And, less deductions of corporate losses.
Choosing Between S Corp and C Corporation Status
Choosing between S corp and C corp structure is not always easy. S corporations are not subject to double taxation and complex regulations of their C corporation counterparts. However, many small businesses make the decision on the way they structure their business on the thought that C corporations are taxed at a much higher rate and this is not always the case.
When the taxable income is less than $75,000 the C corporations tax liability is much lower than the personal tax liability of owners of S corporations. This motivates many business owners in the know to choose C corporation status taxation. However, your business may benefit from changing the taxation status at some point, which is allowed by the IRS provided the business owner follows the governing laws for changing the status.
However, all business owners should consult with a CPA and a qualified tax attorney before they make a final decision regarding their business structure. Furthermore, a good tax attorney is needed throughout the business life cycle of all C corporations at one point or another.
So, if you need help with benefits of a C corporation, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.