Companies with a C corporation status pay a 21% tax rate on their business income in the United States. Among the C corporation advantages and disadvantages to consider is the limited tax liability that the ownership enjoys. It's the most common type of corporation in the U.S. – and with good reason. |  Some exceptions may apply for secondary state registration, like having a business open a second location in a separate state. Enhanced credibility. Issues of personal and business books mixing so that a “piercing the corporate veil” issue develops can also cause problems in this area, but these issues are rare in today’s corporate climate. If the assets for the business are insufficient, then lenders will often insist that the owners make a personal guarantee on the debt. Every business faces a unique set of circumstances that may take advantage of this benefit more often than others, so it is essential to speak with a financial advisor when looking at this option. Corporations have the right to file for trademarks and copyright-protected items as ways to guard their intellectual property. Important notes: 1. The C-Suite can operate the company without oversight when there are multiple fractional-share owners, relying on their ability to provide dividends or returns to appease instead. C corporations can attract several financing options. This benefit is not always defined by the lowest cost that’s available in the marketplace. Before changing your LLC’s tax status with the IRS, we recommend speaking with an accountant and/or a tax lawyer. And both comprise shareholders, directors, and officers. Most states give these businesses the right to free speech, creating a set of circumstances that treats the company more like a person than a separate, created entity. Can a c corp own an s corporation (s corp)? State laws require c corps to hold annual meetings of shareholders and directors and record meeting minutes. When this advantage works as intended, then it makes the company processes more efficient. You may need to post them publicly, open your meetings up to anyone who wants to attend, and then fill out the appropriate tax forms that show compliance. Unlimited growth potential. It is possible to change your legal structure down the road, but there could be tax penalties or waiting periods that create unneeded financial setbacks. The advantages of the corporation structure are as follows: Limited liability.The shareholders of a corporation are only liable up to the amount of their investments. Your email address will not be published. This advantage of C corporations makes it easier to approach the idea of scalability, especially when growth opportunities make themselves known. The company is owned by shareholders, who elect directors. Several states have reciprocal agreements that reduce this obligation for national or international companies. Amazon, the Amazon logo, AmazonSupply, and the AmazonSupply logo are trademarks of Amazon.com, Inc. or its affiliates. Companies can be compelled to testify against their activities or actions by a subpoena or other legal methods. If a business incorporates as a C corporation, then most jurisdictions allow the firm to provide medical reimbursement plans to their workers. Draft and file your Articles of Incorporation with your Secretary of State. Issues with combining personal and corporate finances can also create issues that fall into this disadvantage. State laws require all corporations to maintain a registered address with the Secretary of State in each state where they do business. There is still personal liability within the ownership for the debts of the business if the company is unable to make its payment obligations with this disadvantage. Several filing fees are mandatory when creating a C corporation in the United States. That’s because this is the only option that allows for public ownership of equity. Enjoy tax-deductible business expenses. When you want to become an S corporation or an LLC, then there can be some additional paperwork requirements that you need to fulfill. The advantages of a C Corporation are: unlimited shareholders, strong growth potential, limited liability, tax deductions, and credibility. 4. They want to know that an organization will continue providing what they need, which is more likely from a C corporation than other structures. That means this opportunity allows a foreign investor to get involved with an American company as a way to grow personal profits. It costs more to incorporate under a C corporation structure. Last updated May 30, 2020. C corporation advantages are only relevant to a specific demographic of business owners. Certain tax advantages. Customers are looking for value in the products or services that they buy. C corporations pay taxes on the profit of the business and the owners also pay taxes creating double taxation. There are also no personal tax credits available, something which is open to businesses using other structures. Then please rate this post or leave a comment. Getting to Grips with the Basics of Commercial Property Management. Our Business Specialists are happy to answer your questions. It’s tempting to choose the legal entity that’s easiest to get started, but you’ll want to think of your present and future business needs to make sure the entity you choose makes sense for you. Considered a complete separate entity with a life of its own, a C corporation has many advantages that are attractive to entrepreneurs. That means there are limits to the amount of revenue splitting once can use to limit tax liabilities. Yes. There must be enough assets within the corporation to secure debt financing. Plus, there is no limit to the number of shareholders a c corp can have. As a sole proprietor or in individual partnerships, any damages taken by a corporation can get deducted from the personal income of the owner. If profits get sent out through the use of dividends, then those funds get taxed a second time. The answer is simple. 11. Plus, there is no limit to the number of shareholders a c corp can have. 8. It's inevitable as revenue is taxed at the company level and again as shareholder dividends. It’s tempting to choose the legal entity that’s easiest to get started, but you’ll want to think of your present and future business needs to make sure the entity you choose makes sense for you.