Tag Archive C-Corp

Who should pick C Corporation?

This is a very common question asked by our readers.
Who should use a C Corporation as a business entity?

You should pick a C Corporation if you:

  • Have noncitizen or greencard share holders.
  • Might look for additional funding from venture capital firms.
  • Want a flexible way of splitting profit among business owners.
  • Want to reduce medicare and social security taxes by setting up salaries for employees and/or owners.
  • Want to provide fringe benefits to owners. E.g. life insurance, education, and transportation costs.
  • Want to provide health benefits (through your corporation) to your employees and owners.
  • Want to reduce your taxes by splitting your earnings between your shareholders and the corporation.
  • Want your business earning to stay with in your business so that it can grow.
  • Want to transfer your share among other business partners/share holders.
  • Want to provide stock options to employees as benefit.
  • Want to make it easier for someone else to purchase your business.
  • Want to provide a travel and entertainment benefit to your employees.
These are some of key reasons why you should pick a C Corporation as your business entity. However, you should consult with a professional before setting up your business structure.
Good consultant can advise you to ensure your business structures provides good asset protection and reduce your tax liabilities.
Make sure to understand the requirements of business structure.  For example, C Corporation requires business owner to hold annual meeting and keep the meeting minutes.  You can lose your protected corporation status if you fail to follow the requirements.

Understanding The Basics of C-Corp and S-Corp

A corporation (business organization) is treated as a sovereign entity. Internal Revenue Coding and Taxation Policy declare that all benefits of a C-Corporation will be taxable separately from that of its owner. The profits of S-Corporations on the other hand are taxable on personal returns of the shareholders. This article will present a C-Corp Vs S- Corp scenario and help analyze the pros and cons of both.

There are some basic points of consideration when comparing C-corporation Vs S-Corporation: Corporate level taxation, employment taxation, Business expansion plan, IRS allowance of S-Corporation. Both types have their own merits and demerits. What makes a difference is choosing the correct type of corporation. This will vary from company to company.

 C-Corp and S-Corp similarities:

 Limited liability protection: Both C-Corp and S-Corp works on like terms to provide similar liability protection to their stockholders/ shareholders. This group is kept away from liabilities to share company debts.

 Independent entities: Both C-Corp and S-Corp are individual sovereign bodies filed with the state.

Constitution: C- Corp and S-Corp has their own board of Directors and CEOs, executives and shareholders. The units work in co-operation and every group has their distinct fortes.

C- Corporation Drawbacks:

Extensive set-up procedure: A corporation designated under Subchapter C has to have potential capital investment. Establishment of such a corporation requires thousand of dollars, merely as procedure fees: attorney consultation and planning fee, government fee, judicial fees to the state etc. this is a major drawback for a C-Corp.

Double taxation: Incomes received by a C-Corp undergo double taxation; separate on profits and separate on gross. S-Corporation profits on the other hand are by-passed and taxed on the shareholders level.

Rules:  A C-Corp falls under thorough annual scrutiny of the Government/ state jurisdiction. With a number of debts, lawsuits and other financial commitment such Corporation types are required to observe a trove of rules and regulations. This is time-consuming and tiring.

 

Why S-corporation is a better choice?

 While a C-Corp. is the usual type, those that are categorized as under Subchapter S of revenue code, have a specially elected tax board with the Internal Revenue Service. This helps S-corps to enjoy certain tax exemptions. The two most specific merits that a S-Corporation enjoys over C- Corp are:

  •  No taxation on profits at corporate level
  • Restriction of ownership

C-Corps have to deal with 35%+extra on profits and liquidation while a S-Corporation has just to pay a minimum of 15% tax at shareholders level. This can result to as much as 30% difference in tax liabilities, the C-Corp definitely paying the higher percentage.

Another point of consideration is that a S- corporation corporate can manage the company losses from personal funding initially. The amount accountable however can be subtracted on profit return.

Entities that want to go public can opt for a C-Corporation certification, while others can fill up Form 2553 to register themselves as under S- Subchapter of IRS.