C corporations are the most common corporation in the United States, and it’s not hard to see why. C corporations offer your business a greater opportunity to grow and it’s easier to attract outside investment, or name a few things.
A C corporation is defined as a corporation that lacks restrictions on ownership. This stands in stark contrast to other corporations such has an S corporation, which is restricted to one hundred shareholders at the maximum. Furthermore, C corporations lack restrictions on who (or what, for that matter) can be a shareholder.
Anderson Advisors provides excellent tips on how to start forming a C corporation today, but if you’re still not convinced that a C corporation is right way to go for your business, this article will provide you with valuable information.
Here are the five biggest advantages to forming a C Corporation:
Advantage #1: The Corporation Is Separate From One The Owner
Perhaps the biggest advantage of all to forming a C corporation is the fact that it will be completely separate from you (the owner).
In other words, the corporation will have its own liabilities, rights, and responsibilities. In the event that your company is sued in the future, the lawsuit will be in the name of the company and not you.
Furthermore, your company will be able to buy and use personal property, invest and lend money, and create contracts in its own name as well.
Advantage #2: Outside Investors Will Be Easier To Attract
It will almost always be easier to attract outside investors with a C corporation versus alternate options such as an S corporation or an LLC.
The primary reason here is because there are no limits to the number of shareholders a C corporation can have. Subsequently, they are just easier to invest in and thus more appealing to venture capitalists, who by law are not permitted to invest in S corporations or LLC’s due to the limited number of shareholders.
It will also be easier for you to attract investment in the form of bank financing with a C corp as well, which can be critical for when you’re just starting out and trying to lift your company up off the ground.
Advantage #3: You’ll Be Offered Limited Liability Protection
Since a C corporation is its own entity, any liabilities, obligations, and debts of that corporation are its own. In other words, you won’t be liable for anything done in your company’s name, which could help to spare you from total financial ruin in the most radical of scenarios.
Furthermore, anybody doing business with your C corp will need to turn to the company for satisfying obligations, rather than the shareholders. This means that the exposure to loss for each shareholder is limited dramatically as well.
Advantage #4: You’re Less At Risk For A Tax Audit
As a general rule, the IRS conducts audits of C corporations far less than they do for LLC’s, S corporations, and sole proprietorships.
Does this mean that forming a C corporation guarantees that you will never be audited? Absolutely not, but it is to say that your odds of being audited are far less likely. To that end, you’ll still need to make sure that you keep appropriate records and faithfully file your taxes accurately in order to limit the chances of an audit or be prepared if there is indeed one.
Advantage #5: It’s Easier For Your Company To Grow
Finally, the primary goal of any company is to grow, right? C corporations are almost always easier to grow than LLC’s or sole proprietorships because they are far more attractive for investors.
The most common argument against this is that C corporations are ‘double taxed’ and therefore less likely to grow. It is indeed true that C corporations are subjected to both a tax at the corporate level and a tax on dividends when they are distributed to shareholders.
But there is a perfectly legal way to circumvent this double taxation when you don’t distribute dividends, and instead control your wages and expenses. Not distributing dividends will also further lower your risk for an audit, as the IRS tends to be more concerned with S corporations and LLC’s.
Forming A C Corporation
In short, C corporations simply offer you greater flexibility and potential for growth in comparison to options such as S corporations.