What is a disadvantage of a C-Corp?
What Is a C Corporation?
C-corporations, commonly known as "C corps," are the most common type of corporation. They are subject to corporate taxes on their profits before any dividends are distributed to shareholders. When these profits are paid out as dividends, shareholders must also pay personal income tax on the received amount. This results in double taxation on the same earnings.
How C Corporations Function
C corporations can elect to pay corporate taxes on their earnings prior to distributing profits to shareholders in the form of dividends. Consequently, individual shareholders are then liable for personal income taxes on the dividends they receive.
One notable advantage of C corporations is the clear separation between management and ownership. This distinction allows for the longevity of C corporations beyond the lives of their owners, which can include partial owners termed as shareholders. This structure facilitates the institutionalization of these corporations and opens avenues for passive income for the owners.
C corporations are mandated to conduct at least one annual meeting for shareholders and directors, with minutes recorded to ensure transparency in business operations. They must maintain voting records of the company’s directors, along with a list of owner names and their respective ownership percentages. Additionally, the business is required to have bylaws available at the primary business location. C corps are also responsible for filing annual reports, financial disclosure documents, and financial statements.
However, disadvantages include:
Complexity: Requires adherence to numerous regulations and formalities.
Double Taxation: Corporate earnings are taxed at both corporate and personal levels on dividends.
Understanding these aspects can help small business owners make informed decisions about their business structure. Our office can effectively address any legal questions about corporations. If you have any questions, please fill out the following form below and a Business Lawyer from our office will get back to you.
