Historically the C-Corporation business entity is one of the most commonly used entity types. If you or someone you know own a company that has been around more than 30 years, chances are it’s a C-Corporation. The past 25 years or so have given rise to several new types of entities (such as LLCs and LPs) which have replaced the popularity of the C-Corporation business type, especially among small and mid-sized or family businesses. However, under the right circumstances, the C-Corporation can still be the right choice.
(Related: What is an LLC Company Type?)
Pros of the C-Corporation business entity
1. If you’re ambitious, most large or publically traded companies are C-Corporations.
2. Your company’s employees are eligible to participate in Cafeteria Plans, which is not an option under most other entity types
3. All shareholders receive automatic liability protection
4. Company pays tax on income, not the owners, and the first $75,000 of income earned is
taxed at lower rates (max of 25%)
Cons of C-Corps
1. The C-Corporation is an unfriendly vehicle for holding real estate, since property transfers in and out of the company are taxable events, and the sale of any assets are taxed at ordinary rates, rather than lower capital gains rates
2. Any dividends paid out to shareholders are subject to double taxation
Clearly there are certain situations where a C-Corporation business entity may be the correct type for you, but there are also situations where choosing a C-Corp could cause headaches and cost you money down the road. You should have a professional evaluate whether it is the best choice for your business model. Contact me if you have questions about C-Corporations or if it would work for your company. Is your company a C-Corporation? Was it the right choice?
By David Olson, CPA, Accountant at WHH
David specializes in entity structures, entity reorganizations, and IC-Disc. His experience working with businesses that have multiple entities and complex ownership structures gives him expertise in understanding the taxation and planning that must be considered.
