One of the most difficult decisions questions that any entrepreneur faces when starting a new business is what type of business structure to utilize. One of the many types of possible business structures is the C corp, which offers some distinct advantages over other structures, such as LLCs or S Corps. The following are some of the primary advantages offered by C corps. For more in-depth guidance on what business structure is right for your venture, reach out to a business attorney for help.
To determine if a C corporation is a good fit for you, it is critical to weigh both the advantages and the disadvantages offered by this type of corporate structure.
Advantages of a C Corp
There are a number of distinct advantages available through C corps. Some of the reasons why individuals decide to structure businesses as C corps include the following:
- Profits from C corporations do not pass directly to individual owners and as a result do not influence tax brackets. Instead, profits remain in the company and are taxed at the corporate rate.
- C corporations are capable of taking significant capital and operating losses. The Internal Revenue Service will not scrutinize a person for reporting losses a number of years in a row. Instead, a C corp is capable of carrying losses forward and applying them in later tax years.
- C corporation income is taxed at a 21% flat rate. Any individual with taxable income of $38,700 or more will be taxed at least 22% and sometimes even more.
- Shareholders are able to serve as a C Corporation’s directors and employees.
- C corporations are able to deduct health insurance that is paid for workers. They are also able to deduct the cost of medical reimbursement plans.
- Because C corporation’s tax years are not based around the calendar year, the owners of C corporation are able to perform “income shifting” which can mean the company ends up paying a much lower amount in taxes.
Disadvantages of C Corps
Some of the reasons why business owners decide against a C corporation structure include the following:
- C Corps are double taxed. These corporations are taxed first when the business earns income, and the shareholders are then taxed on the amount they receive.
- The formation of a C corporation is particularly complicated and requires business owners to create a complex series of articles of incorporation and bylaws.
- C corporations face a number of substantial legal challenges. In addition to filing articles of incorporation, many states require corporations to have specific provisions regarding how the company’s management handles matters.
Speak with an Experienced Corporate Lawyer
When you are in the process of creating a business, it can be challenging to determine which business structure works best for you. Fortunately, at Resnick Law, our corporate attorneys have substantial experience with each type of business structure and can help determine which one matches your current needs. Contact our law office today to schedule an initial free consultation.
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