Posts Tagged ‘corporation’

Up to now, I’ve covered sole proprietorships, general partnerships, limited liability companies (LLC), and S-Corporations.  The last major entity option is a C-Corporation. 

As I mentioned in the piece on S-Corporations, in general, S-Corporations and C-Corporations have many of the same advantages and disadvantages. There are some very distinct differences you’ll need to consider.  Here are some advantages and disadvantages of a C-Corporation (yes, there is some duplication with the S-Corporation).

ADVANTAGES:

• Continuity of life – by operation of law the entity has an infinite life.  It is not dependent on its shareholders.
• Transferability – generally shareholders are free to sell or transfer their ownership interests at their own will.
• No liability – generally, shareholders do not have personal liability for the business’s obligations. Owners are only at risk for their investment.
• Bankruptcy – entity can file for bankruptcy.
• Publicly traded – most publicly traded companies are C-Corporations
• Ownership – There are no ownership restrictions like those of the S-Corporation
• Capital gain exclusion – original stockholders may be eligible for a capital gain exclusion on the sale of their stock up to $10 million if the stock is qualified small business stock and the stockholder holds the stock for five years.
• Tax rates – due to increasing personal tax rates, C corporation earnings may be taxed at a lower effective tax rate than individuals.
• Separation – complete separation from owners, tax-wise

DISADVANTAGES:

• Complexity – forming a corporation is nearly as complex and expensive as an LLC or LLP.
• Double taxation – The Corporation pays tax at the entity level.  Then distributions to its owners, aka dividends – are taxed again at the shareholder level.
• Formalities – once formed, there are certain formalities that should be followed
• Shareholders have no management rights – Shareholders elect the Board of Directors who elect the officers.  The officers manage the corporation.
• Dissolution – Unwinding generally involves a taxable transaction

See a professional when making these decisions. Every situation is unique and must be considered separately.