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Pros and Cons of C Corporations

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When starting a business, choosing the form of business to undertake is very important. Deciding whether to incorporate is the best decision you can make for your business.

A C corporation is an entity taxed separately from its owners. The corporation is subject to income tax and is generally for all profit-making entity. Weigh the pros and cons of the business before your decision to incorporate.



1. Perpetual existence: Death of the owner or other shareholders does not affect the running of the corporation.

2. Limited liability: C Corp has a separate entity from the owner. Personal assets cannot be sold to cover the company’s debts.

3. Attract investors: The Corporation can raise more capital through sales of shares to investors. More investors are attracted to the stock option of the C Corporation.

4. Attract talents: C Corps offer stock options and benefits to the employees enabling them to attract top-notch talents into the corporation.

5. Right to seek legal protection: The C Corps are independent of the owners and can seek legal action. It can sue or be sued in a court of law; the corporation has the right to equal protection in any legal proceedings.

6. Write off medical costs: C Corps have the right to use the medical reimbursement plan which enables them to write off any medical costs.

7. Lower taxes: C Corps has the ability to split profits and losses between the owners and the business thus reducing the amount of tax paid. Shareholders can deduct business expenses and employee benefits on the tax paid.

8. Organization structure: There is a well-established organization structure with defined roles and responsibilities of each participant.

9. Ease of transferability: It is easy to transfer the ownership of shares of the entity to other individuals. Due to its separate entity, the business cannot be dissolved by an exit of a shareholder.

10. Reduced rate of capital gains taxation: According to Sec 1202, shareholders can benefit from the sale or redeem shares. It allows 50% of the gains of the qualified stock to be excluded from the income thus, creating an effective capital gain tax rate.



1. Complicated formalities: There are various required proceedings to incorporate the entity. You need to draft the articles of incorporation and bylaws on appointments and the corporate strategy of the entity.

2. Legal requirements: C Corps are required to state how the management will handle the internal affairs. If the corporation wants to do business in another state, it needs to seek permission from a second state. It also faces federal laws in regard to the sale of stock to the public.

3. Double taxation: The C Corps is taxed on the income generated and anytime dividends are issued, the shareholders are taxed on the amount received thus double taxation.

4. Delayed decisions: Compared to other entities, C Corps take a lot of time in deliberating matters of the organization.

5. Strict regulations: The federal state and local authorities impose heavy regulations on the running of the corporation limiting its flexibility.

6. Expensive to maintain: Depending on the state, you’re required to pay between $100 to $1000 incorporation fees. Other fees associated with corporate tax returns, compliance with corporate formality and others increase the cost of running the entity.

7. Tax traps: Sometimes shareholders can experience tax traps on accumulated earnings and on personal holding companies.

8. Increased paperwork: Starting a C Corp require filing a number of documents which includes articles of incorporation, entity bylaws, minutes and certificate of good conduct among others.

9. Independent management: The management team can run the entity based on their own interest rather than the interest of investors.

10. Corporate losses: The Federal law requires the C Corp losses to be reported on the shareholders’ personal tax returns since the corporation doesn’t deduct the corporate losses.

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