While forming a C Corporation might not be right for your business, it’s important to look in detail at all the pros and cons before making any conclusions:
What is a C Corporation?
A C Corp is a legal structure for a business with owners or shareholders who are taxed separately from the entity; a double taxation situation is created due to the profits being taxed at both corporate and personal levels. Shareholders are unlimited and you can also be the sole shareholder. All C Corps must issue shares of stock and have a board of directors and officers.
How are C Corporations formed?
While each state has its own specific requirements for forming a C Corp, they typically follow the steps listed below:
- If possible, file up to three different names for the corporation; the Secretary of State will then select one that is available and not trademarked. Then, appoint corporation directors or assume the role of sole director if you so wish.
- In the state where the corporation will be filed, file articles of incorporation with the Secretary of State; it may be easier and less stressful to allocate this task (and any others associated with registering a business) to an entity management professional.
- Compose the bylaws for the company; these are the blueprint for the successful operation of any corporation, and C Corps must have them.
- Once the articles of incorporation have been accepted for filing, issue stock.
- If required, apply for any business licenses.
- File for a tax ID or EIN and any others that may be required. An entity management professional will be able to better advise you.
- Hold the first directors meeting and hold them regularly from then on in.
What are some of the advantages of forming a C Corp?
There are numerous, but the most common are listed below:
- Liability is limited – the shareholders are also the owners of the corporation and are not personally liable.
- Tax deductions are plentiful – depending upon where you’re filing, there may be numerous tax deductions available; a professional entity management company can help you with this.
- Improved ability to survive loss of the corporate owners.
- Ability to survive the loss of corporate owners
- Ability to attract investors
- Potential for growth – c corps have multiple opportunities to grow and take the company public
What are some of the disadvantages of creating a C Corporation?
A C Corporation might not be the right fit for your company, and here’s why:
- Double taxation – the corporation and shareholders pay taxes
- More cost involved – C corporations can be more expensive to set up and maintain
- Increased government intervention – to ensure regulations are being followed, government intervention is heightened.
- Corporate losses unable to be deducted – this is when filing personal taxes.
While it’s recommended that you carefully consider the above advantages and disadvantages of creating a C Corporation before making a final decision, you’d also be advised to seek further guidance from a professional entity management company, who can not only advise you better, but can also help you with the processes involved with creating any kind of business, C Corp or otherwise.