www.taxprofessionals.com - TaxProfessionals.com
Posted by Tiffany Gaskin

C Corporation: Higher Taxes and Other Advantages

C Corporation: Higher Taxes and Other Advantages

For small businesses that are growing, they can consider a C corporation for their business structure when it's time to expand fully. There are advantages and disadvantages that come from structuring your business as a C corp.

Explaining a C corporation 

Like an S-corp, a C corp is a limited liability company meaning that the company is legally responsible for its debt and obligations, not the shareholders. 

The number of investors permitted in a C corp is unlimited, which can be groups or individuals like banks, an investment group, etc. The way of being a shareholder differs depending on the classes of stock issued. 

Such a business, however, will have to deal with double taxes from Uncle Sam. In other words, the company pays taxes on all profits made. Also, when the shareholders get the dividends, they will pay taxes as well.

Pros of C corporations

Large Investor Pool: For instance, you might want to enlarge your hamburger business to take advantage of national and regional presence. This requires an inflow of cash, and with a C corporation, there are unlimited investors that are ready to have a share in the company. These shareholders might be individuals, businesses and might be domestic or foreign. 

Also, the stock one can offer varies. As a result, the business gets more options than an S corp that is limited to 100 shareholders with restrictions on who can be the shareowners. 

C Corp is a magnet for Investors: there are angel investors and venture capitalists that will not mind investing in a company as long as they have the opportunity to secure a preferred amount of stock. Many of these potential investors are after business for profit and might not be based in the US. This disqualifies them from investing in an S corp, while an LLC could be a no-go area for them. 

One advantage of a C corp business is that such business's potential is not restricted as the access to capital is not limited. This can encourage equity investors to fund the growth, which makes sense for a business that wants to go public. 

Reduces health care coststhe owner of a C corp can typically deduct the premium for health care insurance from the taxes, and the business can deduct the full amount on their corporate tax return. 

Cons of C Corporation 

Double Profit taxation: The primary reason a lot of small business owners will preferably not set up as a C corp is the issue of double taxation. Any business from your C-corp firm will be taxed. After you and the other shareholders take the profits, the shares will be taxed.

With this, Uncle Sam has successfully taken from you twice, as compared to a business that is structured as a simple pass-through entity.

Complexity: ideally, you want to avoid issues with the law yet, owning and operating a C corp is not something you can single-handedly take over. There are various corporate formalities you need to abide by, state and federal tax obligations, etc.

This makes the presence of a lawyer and an accountant essential if you desire to operate your firm as a C corp and stay within the regulations of the law. These will cost you money, time, and resources. 

Starting a C-Corporation 

Pick a name for your company: Choose a name and have an in-depth search of available public databases at your state and others where you intend to have your business.

Go for an EIN: if you have not gotten an Employer Identification Number, get one. All corporations must have one, based on Uncle Sam's requirement.

Prepare your draft bylaws, your officers, and board of directors: This is one of the state's requirements, which must be done at the inception of the firm.

Incorporate Your Business: there are various state agencies in the US with which you can register the business. There are multiple forms, fees, and procedures required. The agency that takes care of business might have a different name in various states.



Tiffany Gaskin
Contact Member