Why choose a C corporation?
When registering a company, C corporation or C corp is the most common corporation type, but it isn’t always the top choice for small business owners. C corporations provide limited liability protection to owners, who are called shareholders, meaning owners are typically not personally responsible for business debts and liabilities. Starting a C corporation may also offer greater tax advantages because of an expanded ability to deduct employee benefits, which are most often used by growing businesses.
C corp advantages
Starting a C corporation typically provides a number of advantages:
- Limited liability protection. Owners are not typically responsible for business debts and liabilities.
- Unlimited owners. C corps can have an unlimited number of shareholders.
- Easy transfer of ownership. Ownership is easily transferable through the sale of stock.
- Unlimited life. When a C corporation’s owner incurs a disabling illness or dies, the corporation does not cease to exist.
- Owners take reasonable salaries. Salaries paid to owners of C Corporations, though taxable to them as salary, are deducted from C Corp profits for income tax purposes.
- Owners are not automatically taxed on business earnings. In contrast to pass-through entities like LLCs, earnings of a C Corporation are not automatically taxed to the owners. They are taxed to owners if distributed as dividends. The C Corp pays tax on its income at C Corp tax rates.
- Raise capital more easily. Additional capital can be raised by selling shares of stock.
- Retained earnings inside the business. A C Corp could successfully retain earnings for reasonable business needs, if it complies with the accumulated earnings tax provisions, instead of distributing them to shareholders.
- Credibility. C Corps may be perceived as a more professional/legitimate entity than a sole proprietorship or general partnership.
- Lower audit risk. Generally C corporations are audited less frequently than sole proprietorships.
- Tax deductible expenses. Business expenses may be tax-deductible.
- Self-employment tax savings. A C corporation can offer self-employment tax savings, since owners who work for the business are classified as employees.
How do you form a C corporation?
In order to register a company as a C corporation, Articles of Incorporation (sometimes called a Certificate of Incorporation, must be filed with the state and the necessary filing fees paid. Upon incorporation, C corporations are also required to adopt bylaws, hold an initial meeting of directors and shareholders, and issue shares of stock to owners. With three simple steps, starting a C corporation with BizFiling is easy. Get started.
Are You Looking for a PC?
Professional services that require state licensing (doctors, lawyers, architects, etc.) may require forming as a Professional Corporation or PC. Learn more