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C Corporations: An overview

The most common type of corporation in the United States is a C corporation. These corporations are popular because of their nearly unlimited potential for growth through the sale of stock. This is a very tempting prospect for wealthy investors--not to mention, there is no limit to a C corporation's number of shareholders.

At some point in their careers, some business owners will face the opportunity incorporate their small business into a C corporation. There are many factors that make this option tempting, but don't rush into anything just yet: To help you understand these corporations and whether you should form one, this post will discuss some of the most important aspects of C corporations.

What is a C Corporation?

A C Corporation is a business that is considered an individual entity that is separate from its shareholders. Its profits are taxed independently from its owners under subchapter C of the Internal Revenue Code. The company is owned by its shareholders, and a board of directors is elected to make important business decisions. If the owners of a C corporation should die or change, the company does not necessarily dissolve.

Advantages

The popularity of C corporations speaks to their many advantages, including:

  • Limited liability, which protects against lawsuits or debts.
  • It is easier for corporations to raise capital.
  • C corporations often attract excellent employees.
  • They can deduct fringe benefits from taxes.
  • The company's existence can continue indefinitely.
  • It can have an unlimited number of shareholders, including S corporations, C corporations, partnerships or LLCs.

Disadvantages

They do, however, have their disadvantages:

  • There is double taxation on corporate profits and private income.
  • Corporations are often rife with red tape and bureaucracy.
  • There are strict regulations on how C corporations can distribute their dividends.
  • C corporations must have a board of directors and officers, although technically it is legal for you to be the one and only officer and director.

Our next blog post will go over several more important details about C corporations, including their structure and management.

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