- Curington Law, LLC
A Closer Look at C-Corporations
A C-Corporation is a legal entity formed to conduct business. This type of corporation is separate from its owners and has limited liability, which means that its shareholders are not personally liable for the debts and liabilities of the corporation. The ownership of a C-Corporation is divided into shares of stock, which are owned by its shareholders. A C-Corporation is subject to corporate income tax, meaning its profits will be taxed twice—once when the profits are made, and again when dividends are distributed to the shareholders. Let’s take a closer look at what makes a C-Corporation different from other types of corporations.
C-Corporations vs Other Corporations
What sets a C-corporation apart from other types of corporations? The biggest difference is taxation; while an S-Corporation, or LLC, might enjoy pass-through taxation (whereby profits are not taxed at the corporate level but rather passed through to the owners), C-Corporations do not enjoy such benefits. Rather, their profits will be taxed twice—as mentioned above—which can be costly depending on your profit margins. This double taxation should be taken into account when deciding between different types of corporations.
Another major difference between a C-Corporation and other types of corporations is that it allows for unlimited shareholder participation in the company’s management and operations. Unlike an S-Corporation where only one class of stock exists, with a C-Corporation you can issue multiple classes of stock with different voting rights or dividend privileges for each class. This allows for more flexibility in terms of how much control each shareholder has over the company. Additionally, many venture capitalists prefer investing in C-Corporations since they have greater ability to diversify their investments across multiple classes of stock as opposed to single classes offered by S-Corporations and LLCs.
Many businesses choose to form as a C-Corporation because it offers more credibility than other types of entities due to its long history and established regulations surrounding it. This can make it easier to secure financing or attract investors who may otherwise be hesitant about investing in less established entities like LLCs or S-Corporations that lack the same level of legal protection as a traditional corporation does.
Tax Advantages of a C-Corporation
The biggest advantage of forming a C-Corporation is that it allows you to take advantage of corporate tax rates which are usually lower than individual tax rates. Additionally, you can also take advantage of deductions and credits that may not be available to other types of businesses.
For example, if you have employees who work for your business, you can deduct their wages and other associated costs as an expense on your taxes. This reduces your overall taxable income and thus reduces your tax burden overall. Furthermore, if you have shareholders who receive dividends or profits from your company, they may be able to benefit from reduced tax rates as well.
In summary, if you’re looking for flexibility in terms of managing your shareholders’ voting rights or appealing to potential investors then forming as a C-Corporation could be beneficial for your business needs. However, keep in mind that this type of corporation does come with some drawbacks such as double taxation which must be taken into account before making your final decision about what type of entity best suits your business needs. Ultimately it’s important to speak with an experienced attorney who can help you weigh all the pros and cons associated with various types of business entities so you can make an informed decision about which one would work best for your company's unique needs and goals.
For more information about C-Corporations and other business entities, contact Curington Law, LLC at 312 803-1755 or online.