C Corporations:
The Advantages and Disadvantages to Being a C Corporation
With the exception of the difference in tax treatment, a C corporation and S corporation have many of the same attributes.
Both C corporation and S corporations are formed (incorporated) at the state level and both are separate and distinct from their shareholders (owners). The “C” or “S” designation is just for federal tax treatment.
A C corporation can be taxed, sued, and can enter into contracts.
In both C corporations and S corporations, the owners (shareholders) elect a board of directors to oversee the policies of the corporation. The board of directors then elects the officers, who run the day-to-day operations. In a small corporation (of one or two people), often the board of directors and the officers are the same people.
Advantages of a Corporation (applies to both C corporation and S corporations)
- Shareholders’ personal assets are insulated against any debts, judgments or other obligations of the corporation (so long as the shareholders observe corporate formalities).
- In most cases, the largest amount a shareholder can be liable for in a judgment against the corporation is his or her stock (but there can be personal liability for fraud, failure to withhold/ pay employment taxes,etc).
- Corporations can raise capital by selling stock.
- Corporations may deduct the costs of benefits it provides to officers and employees (e.g. health insurance premiums, parking, etc.).
Disadvantages of a Corporation (applies to C corporations and S corporations)
The biggest disadvantage to forming a C corporation (or S corporation) is that you have to pay a state filing fee, and if you have a lawyer draft the forms you have those costs as well. Most states charge an annual fee (usually around $100) to keep the corporation in good standing.
Compare C corporations to LLCs and S Corporations.
View a chart that compares C corporations, S corporations and LLCs
