The BizFilings blog covering business tips and trends.
When to Consider a C Corp
Published on May 8, 2012
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.
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.
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.
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.