C Corp Advantages: Everything You Need to Know
C corporations have charters granted by the state where they organize. 4 min read
2. Advantages of C Corporations
There are several C corp advantages. For more than 500 years, business owners have taken advantage of the limited liability of corporations. The protection encourages innovation and risk taking in business. In the United States, the C corporation is the most popular corporation type. Both C corporations and S corporations are business charters created through the formation of a business entity using Articles of Incorporation.
Like S corporations, C corporations have charters granted by the state where they organize. To enjoy the benefits of the best asset protection, you are able to organize your business in Nevada and you may qualify to do business in Georgia or another state. Setting your business up like this requires you to pay annual corporation maintenance fees in both states.
C Corporations are great for a business with:
- Products for sale.
- Large or high-dollar facilities.
- Businesses with substantial business assets.
C corporations are not as favorable when it comes to holding high-dollar appreciating assets, because of the taxation on the sale of appreciating assets. Directors elected by the owners or shareholders manage the corporation. The managing directors not only create a vision for the direction of the corporation, but they also manage the plan for the corporation. The directors hire officers and managers who are responsible for overseeing the day-to-day implementation of the plan.
The owners of an S corporation is not held liable for the obligations and debts of a corporation. Some owners may not keep business funds and personal funds separated or they disregard the corporation form through commingling business and personal funds. If creditors find that you are not keeping business best practices, they are able to go after your personal property by "piercing the corporate veil" of protection offered through incorporation.
Another way the "corporate veil" may be broken is through termination by the governing state for failure to submit required state forms and for not paying all of the associated taxes and fees. When you form a business it is looked at as a separate entity from you and other shareholders. So, a corporation may take legal action against any other person or entity in the name of the corporation. The C corporation is able to make contracts and guarantees, invest, own real property, and lend money.
C and S corporations both offer the best limited liability protection. Both C and S corporations are filed by filing regular C corporation Articles of Incorporation. Both are made up of officers, directors, and shareholders. The two corporation types are very similar, yet they are different in terms of the complex ownership and corporate taxation.
The S and C are sections of the IRS Code that govern C corporations and S corporations. C corporations have double taxation. A tax at the corporate level and a second on the profits distributed to the shareholders is one of the disadvantages of the C corporation election status. This is the reason so many people consider forming an S corporation with only one level of taxation.
Pass-through taxation is a key feature of S corporation. This means they avoid double taxation at the corporate and personal income tax level. Only United States citizens may be owners of an S corporation. However, C corporations allow foreign corporations, nonresident aliens, and most individuals and entities may hold shares in a C corporation.
Also, a corporation electing S corporation status with the Internal Revenue Service (IRS) may not have corporations, other s corps, LLCs, trusts, and partnerships as shareholders. On the other hand, a C corporation has no real limits on what or who may have an ownership interest.
Advantages of C Corporations
You should consider the potential benefits of a C corporation when you decide what structure to use for your business venture. C corporations are allowed to have shareholders from around the world and the number of shareholders is not limited.
Directors and officers of Nevada and Wyoming C corporations can reside in any country. The growth potential of C corporations through stock sales is unlimited. This is particularly attractive when you are attracting wealthy investors. C corporations may have several share classes.
The standard corporation gives the largest range of expenses and deductions allowed by the IRS — for example, fringe benefits for employees. C corporations may set up medical and other employee paid benefits. The premiums are deducted from the employees pay and the company then pays the premiums out of the corporate account. There are even more advantages and some disadvantages, as well.
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