C
Corporations are ordinary business corporations that have not elected
to be treated as Subchapter S corporations. Forming a C Corporation
allows a business owner to create a separate legal structure that can
shield their personal assets from judgments against the business.
Unless a corporation applies for S Corporation status, the IRS taxes
corporate profits as well as dividends paid to shareholders. Many tax
professionals refer to this scenario as "double taxation."
Advantages:
-
The
C Corporation may become a public corporation, with its shares being
bought and sold either through a stock market or "over the counter".
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The
C Corporation may ordinarily deduct the entire value of the fringe
benefits offered to shareholders who also serve as employees.
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Unlike
an S Corporation, there is no limit on the number of shareholders and
shares may be held by people who are neither citizens nor residents of
the United States.
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There can also be advantages to the C Corporation, in its flexibility to carry corporate losses forward to future tax years.
Tax Advantages:
-
The
corporation pays taxes on its income, shareholders personally pay taxes
on any dividends and employees pay income tax on salary. However, if
the corporation pays salary, instead of dividends, then it may deduct
the salary expenses so that the income is only taxed once.
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The corporation may deduct expenses for employees, health insurance and other items also.
Disadvantages
:
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The
costs and effort of maintaining a corporation are higher due to legal
requirements about an annual shareholder meeting, corporate minutes and
other procedures which must be followed.
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A
corporation which has an office in a state other the one its
incorporated in must register as a foreign corporation in that state.
The cost of incorporation, maintaining an agent for service (a person
to receive legal documents required by law), registered as a foreign
corporation and upkeep of corporate procedure documents is higher than
some other forms of business.
