Question

Time to consider C corporations? Traditionally, the choices of a form of doing business were partnerships, LLC's, C corporations, and S corporations, but the downside of traditional corporations, also called C corporations, was said to be the problem of double taxation. The income is taxed once at the corporate level, and then when any of it is paid out as dividends, it is taxed a second time at the shareholder level. This made C corporations not a real popular choice compared to S corporations, partnerships or LLC’s. But in recent years the tax law changed. The top rate on C corporations dropped from a 35% to 39% range, down to only 21%, a huge drop. For a number of years now, dividends to individuals are taxed at a low tax rate, 20% or less, the same as the tax rate for long-term capital gains, and significantly lower than the tax on wages, interest and other types of income. Is it time for business people to take a second look at maybe using a C corporation? The double taxation has very little effect. What is your opinion of using a C Corporation, as opposed to a partnership, LLC, or S corporation? What advantages are there to using a C Corporation, over one of these other entities?

Answer 1

Benefits of C Corporation :

1 ) Separate Legal Entity - C Corporations are separate from its members. It can sue and be sued in its own name. It can own property in its own name. It can enter into contract in its own name. Therefore, there is no link between ownership of owners and corporation.

2) Limited Liability for the Owners - OIne of the major benefits of C Corporation is the mebers have limited liability over the creditors of the corporation. Members would be liable only upto their contribution and their personal assets taken to pay off corporation's liability.

3 ) Perpetual existence - C Corporations have perpetual existence having no expiration dates and there is unlimited term for existence as a corporation.

4) Corporations can offer stock options to their members. These corporations can get itself listed in stock exchanges and can also offer equity to members.

5) More attractive to investors - As compared to S corporations and LLC, C corporations are more attractive for investors. For example Venture Capitalists prefers to invest in C corporations due to various tax planning opportunities.