C Corporations | Advantages and Disadvantages




A C corporation provides limited liability to its owners (shareholders), has an unlimited life, and is the best entity type for adding new investors and raising money (which is why nearly all companies that go public are C corporations). Anyone can be a shareholder and there can be an unlimited number of shareholders. A C corporation can also have multiple classes of stock.

The downside is that you need to file articles of incorporation in one of the fifty U.S. states to create a C corporation and be subject to state regulations pertaining to corporations (e.g., you may be required to file an annual report with the state where the business is incorporated). Also, the losses of the company are not deductible by shareholders, and distributions of appreciated property can trigger a taxable gain. The most significant drawback to C corporations, however, is double taxation: the corporation’s profits are taxed once at the corporate level, and are then taxed a second time at the shareholder level if the corporation issues a dividend. —
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