C Corporation is any corporation that is taxed separately from its owners. It is a legal structure for a corporation in which the owners or shareholders are taxed separately from the entity. They are also subject to corporate income taxation.
They have limited liability, the shareholders are entitled to ownership, double taxation, continuing lifespan and they have professional management.
Pros of C Corporations
- Separate legal identity
The corporations have separate legal identities whereby the owners or shareholders are taxed separately from the entity. This gives them room to have their own rules and regulations.
- Limited liability for the owners
The owners are entitled to limited liabilities in that in case there is a debt they have to come in and pay the debts all of them.
- Tax planning opportunities
As the shareholders are taxed separately, this gives them a chance to plan on how they are going to pay for their taxes.
- The shareholders have the ability to offer stock options
They can advise on the option of stock the corporation is to offer and this makes them have upper hand in the corporation for making decisions.
- Allows many investors
As the shareholders or owners are taxed separately, the corporation allows many investors to come in as the investors will be liable to their expenses.
- Well established legal precedents
There are legal rules that govern the corporations and are well established and this makes the investors not fear lose their money in the process of running the business.
- Shares can be transferred
This allows the shareholders to sell their shares to other companies when they have better prices compared to theirs hence making them earn profit from the sale of the shares.
- No restrictions on who can hold shares in the corporation
This makes it possible for many people to invest in the corporations as it does not restrict the people to own shares in the corporations.
- There is a separation between ownership and management
The corporations have different rules that govern the management and different rules that govern the ownership hence easy for the members to work on their own.
- They allow investment
The shareholders can invest in the corporations in that they can store their shares in the corporation and wait for the prices to be good and they sell the shares hence investment.
Cons of C Corporations
- There is double taxation
The shareholders are taxed double because the government taxes the company and also tax the dividends of the shareholders hence double taxation.
- Expensive to start
It is very expensive to start as corporations requires several people. The fees that are paid to start the corporations are also high and this makes it expensive before it starts its operations.
- A lot of regulations and formalities
To start a c corporation, there are a lot of rules and formalities that need to be observed hence the procedure discourages a lot of people from starting c corporations.
- Increased paperwork
There is a lot of paperwork in managing c corporations as it has to file several documents, including the articles incorporation and certificate of good standing.
- No deduction of corporate losses
In case the corporation makes a loss, it has to pay for its loss individually as the shareholders are only liable to the losses made by themselves.
Although it is the most difficult and costly to form because of its regulations, the c corporations have strong liability protection hence most people prefer to go for the corporations.