“Understanding the Benefits and Drawbacks of a C Corporation”

Pros of a C Corporation:
– Allows the business to be treated and taxed as a separate entity from the owner
– Provides protection from the debts of the business
– Can control day-to-day operations and corporate acts such as redemptions and acquisitions
– Lower corporate tax rate of 21%

Cons of a C Corporation:
– Requires compliance with formalities such as filing articles of incorporation and adopting bylaws
– Losses are trapped at the entity level and generally cannot be deducted by the owners
– Earnings can be subject to double taxation at the corporate level and when distributed to the owner – A C corporation can provide fringe benefits and fund qualified pension plans on a tax-favored basis, allowing the corporation to deduct the cost of benefits like health insurance and group life insurance without adverse tax consequences to the owner.
– A C corporation offers flexibility in raising capital from outside investors, with the ability to have multiple classes of stock and the option to raise capital through debt, with interest paid by the corporation being deductible.
– Changing from a C corporation to an S corporation in the future may be possible and tax-free, except for potential tax on built-in gain on corporate assets if disposed of within 10 years of the change.

Choosing a Business Entity? Here Are the Pros and Cons of a C Corporation