Time to Startup!

The BizFilings blog covering business tips and trends.

When to Consider a C Corp

Published on May 8, 2012

Summary

Read 'When to Consider a C Corp' at 'Time to Start Up,' the small business blog by BizFilings.
By Brooke Miller Hall   Most major companies and many smaller companies are treated as C Corporations for U.S. income tax purposes. C Corporation refers to any corporation that, under U.S. tax law, is taxed separately from its owners. By contrast, an S Corporation is not taxed separately. The standard corporation, or C Corporation, structure limits each owner’s (shareholder's) personal liability for the corporation’s business debts to the amount invested in the company by the shareholder. To determine if a C Corporation is the right business type for you, consider your needs for flexibility, your financial structure and the future of your business.  

Flexibility

C Corporations offer the flexibility to:
  • Spread business earnings between the corporation and shareholders for tax-planning purposes.
  • Set salaries for employees/owners to minimize Social Security and Medicare taxes.
  • Provide (through the corporation) substantial health and medical benefits and other fringe benefit programs for things like education, life insurance, and transportation cost.
  • Allow flexible profit-sharing among owners.
 

Financials

When looking at your financial structure and goals, a C Corp may be right for your company if you:
  • May need venture capital for financing.
  • Expect your business to own real estate.
  • Want company earnings to stay in your business so that it can grow.
  • Want to be able to offer stock options to employees.
  • Prefer to lower your risk of IRS audit exposure, since there is a higher audit rate for business income that is reported solely on Schedule C of Form 1040 (U.S. Individual Income Tax Return).
  • Want to provide an accountable plan for travel and entertainment.
 

Future

Additionally, if you want to be able to easily sell your business, consider a C Corporation structure. Likewise, if your business has the potential to go public, it must be a C Corporation in order to be traded on a national exchange.   Take a closer look at the different business types using our comparison chart.