A C corporation business structure isn't appropriate for every company.
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But for the right business, a C corp designation offers considerable advantages. As a business owner, the key is to weigh the benefits of a C corporation against the benefits associated with other business structures.
Right out of the gate, it's important to note that C corporations are not pass-through business entities. In other words, liabilities and income do not automatically pass through to the company's owners. Depending on your goals, that can be a big advantage for both you and your company. Here are some C corp advantages to mull over . . .
- Going public. If your investment strategy involves going public, a C corporation is the right way to go. C corporations are permitted to offer their stock to the general public through either the stock market or a direct stock selling approach.
- Unlimited shareholders. Unlike S corporations, C corporations can have an unlimited number of shareholders. This is obviously an advantage for publicly traded corporations. But it can have beneficial implications for non-publicly traded corporations as well.
- Streamlined ownership transfers. The sale of stock in a C corporation makes it easy for owners to enter and exit the company. Compared to transitions in a partnership or a sole proprietorship, ownership transitions in a C corporation are straightfoward–unless the entire corporation is being sold, in which case the process can become more complex.
- Business continuity. Sole proprietorships rarely survive the death of their owners. But in a C corporation, the company is its own legal entity, capable of continuing on after the death of one or more of its owners. If the C corp has a large number of shareholders, the death of a single owner has no effect on the continuing operation of the company.
- Tax benefits. C corporations can carry corporate losses forward to future tax years. Additionally, C corporations have the ability to deduct the entire value of the fringe benefits they offer to their employees, including employees who are also shareholders. However, you should also be aware that there may be some significant tax disadvantages involved with a C corp, especially when the corporation is sold.