A complex business structure with strict requirements, a C corporation is the structure of large businesses whose shares are publicly traded on a stock exchange. Considered a separate legal entity from its owners (i.e. shareholders), a C corporation’s shareholders are shielded from personal liability. Generally, the C corporation itself is liable for its debts and obligations, not the shareholders’ personal assets.
To learn more about different business structures, check out our video series on selecting the right business entity for you.
C corporations have complex legal requirements that may not be suitable for every business. If corporate formalities aren’t followed, shareholders can forfeit their limited liability protection and be personally liable for the C corporation’s debts and obligations. For a general overview of C corporations, see the video below; for more info on their benefits and disadvantages, continue reading.
Why Should I Choose a C Corporation?
C corporations have distinct advantages, such as:
- Limited liability: If corporate formalities are followed, shareholders will not be personally liable for the debts and obligations of the C corporation beyond their initial investment.
- Attracts investors: If you want to have several shareholders or attract outside investment, C corporations are your ideal structure.
- Going public: If going public on a stock exchange is your ultimate exit strategy, a C corporation is your preferred route.
What Are the Downfalls of C Corporations?
On the flipside, here are some disadvantages of C corporations:
- Double taxation: C corporations are subject to double taxation, once at the corporate level and once at the individual shareholder level, making it a heavily taxed entity.
- Strict corporate formalities: Among other requirements, C corporations must have annual directors meetings, annual shareholders meetings, maintain corporate minutes and maintain a separate bank account.
- Costly and tedious to set up: You have to file forms with your state and shell over a few hundred dollars to get started.