Starting a business requires making many choices, and one of the first and most important decisions you need to make is picking the right corporate structure for your business. One of the most popular corporate business structures for small businesses is the C-corporation. When deciding if this type of business structure is right for you, there are a few factors to consider such as taxation, tax implications, safety, legal requirements, and administration costs.

Owners looking for counsel on C-corps that understand the state-specific considerations such as those in New York should look to experienced legal services, such as UpCounsel, that can quickly connect them with a local attorney to review legal procedures and compliance to state laws.

C-corporations, or “C corps,” are separate legal entities from the owners, so they’re not held personally and legally liable for its obligations, allowing business owners to keep their personal assets safe from danger. This limited liability feature is one of the primary advantages to operating this type of corporate structure, and thus, many small businesses are drawn to setting up their business as a C-corp. However, before C-corps become the right business structures for you, there are five key things that owners should consider.

1. Taxation

Forming a C-corp, and keeping it compliant for long-term sustainability, involves researching and following a wide range of different tax regulations. In the US, C-corps are subject to “double taxation” when it comes to profits and dividends paid out to shareholders. In addition to this, C-corps are responsible for paying federal income tax and self-employment taxes for owners or employees who are subject to pay.

2. Tax Implications

When it comes to tax deductions, C-corps are limited when compared to other types of corporate structures as certain deductions cannot be taken. For instance, the owners of C-corps are not allowed to deduct the company’s losses on their personal tax returns. In addition to this, it’s important to keep in mind that dividends paid to a C-corp’s shareholders are taxed twice, once at the corporate level and then again at the personal tax level.

When considering the taxation of C-corps, it's important to understand various state-specific regulations, especially when starting up a business in a new state since they often differ. Potential owners in New York seeking assistance with taxation of C-corps should utilize a reputable legal team like those at UpCounsel to ensure that they’re connected with experienced, local attorneys that understand the different state regulations and help them get the best legal advice for their specific C-corp.

3. Protection of Assets

The protection of assets is one of the big advantages to a C-corp, as the corporate structure separates owners’ and shareholders’ personal assets from the C-corp. This means that owners, shareholders, and investors cannot be held personally liable for debts or obligations of the C-corp, limiting the dangers posed to personal assets and providing significant protection to those operating the C-corp.

4. Legal Requirements

It's important to remember that C-corps are separate legal entities, and as such, state-specific laws, regulations, and protocols need to be followed. These legal requirements vary from state to state, requiring C-corp owners to be actively engaged in keeping up with updates and carefully adhering to them in order to remain compliant and protect the C-corp.

Therefore, the main legal considerations for C-corps include disclosure requirements, implementation of corporate and operating agreements, director’s meetings, ownership of personal assets, and other areas.

5. Administration Costs

C-corps are more expensive to maintain due to their specific regulation requirements that involve more complex filings, administrative fees, and associated costs than other types of corporate structures. They involve high establishing and annual costs, such as those associated with tax preparation, filing requirements, and necessary operational costs.

Closing considerations

C-corps have many advantages and opportunities, but there are also several considerations to make when deciding if this is the right business structure for your business. From high taxation to legal requirements and costs, C-corps are often not the best and most cost-effective solution for small business owners, but they can be a great option when starting a larger business.

For business owners in the state of New York specifically, considering the specific factors of the C-corp business structure should be discussed with an experienced team of attorneys to ensure that regulations and compliance with state and local laws are met. UpCounsel’s network of experienced business lawyers can provide business owners with high quality, cost-effective legal services to make sure that they’re in the most advantageous position possible when making the decision of what type of business structure they need.

Topics:

C-Corp,

tax considerations,

C-Corp legal requirements