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Advantages and Disadvantages of a C-Corporation

Date: 06/07/2016 | Category: Incorporation | Author: Jakub Vele

There are a number of corporate types that business owners can choose from when deciding to incorporate their business.  The most common corporate form is the C-corporation.  This type of corporate form offers business owners the legal protection of their personal assets.  Because a corporation is considered to be a separate legal entity from its business owners, this protection is able to exist.  Here are the advantages and disadvantages of incorporating your business as a C-Corporation.

Advantages of a C-corporation

The primary reason why many business owners choose to incorporate as a C-corporation is to protect their personal assets from liability.  Although some other business forms offer protection, the structure of a C-corporation makes it more difficult for liability protection to be challenged.

Another advantage of a C-corporation is that they allow a company to easily attract investors.  For example, if a corporation wishes to have more than 100 shareholders, a subchapter S election is not available for this this type of corporation.  Therefore, if business owners wish to raise money for the company by issuing many shares, it is necessary for the business to incorporate as a C-corporation.

Due to the fact that C-corporations must adhere to certain reporting requirements, it may be easier to garner investors if a business is incorporated as a C-corporation.  A C-corporation offers a measure of reliability which often makes investors more comfortable investing in them.

Furthermore, C-corporations stay in business even if the original owners choose to leave.  Because a C-corporation is a separate and distinct legal entity from its owners, it remains in perpetual existence.  Thus, a C-corporation is a more stable business form than most other types.  This fact helps to protect the owners, because the business does not need to be restructured if one of the owners decides to leave.

Disadvantages of a C-corporation

One of the main disadvantages of a C-corporation is the problem of double taxation.  Unlike LLCs and S-corporations, which are pass-through entities with regard to taxation, the C-corporation is taxed at the corporate level, and the business owners are again taxed at a personal level on earnings that are dispersed to them in the form of income.  Thus, if a business does not need to raise capital through the issuance of shares, business owners often find that they pay less in taxes through an S-corporation.

Another disadvantage of the C-corporation is the amount of regulation that is involved with its formation.  A business that it incorporated as a C-corporation must meet certain requirements such as having a board of directors, regular shareholder meetings, and the recording of minutes.

In addition, it can be expensive and time consuming to start a C-corporation.  Because the C-corporation must adhere to previously discussed regulations, the paperwork required to start a C-Corporation can take a significant amount of time. Furthermore, there are a number of fees that must be paid to set up a C-corporation.