What is a C Corporation
A C corporation is a company owned by various stockholders. For tax purposes, the C Corporation is treated as if it were a separate legal company. In the event of financial or other business issues, this separation shields shareholders and directors from liability. Unless they apply for S company status, all corporations are C corporations by default.
C Corporation – Benefits
The benefits of being a C corporation are numerous. Because such a corporation is a separate legal entity, it can do business on its own behalf just like any other individual; yet, it is easier for it to acquire financial backing (for example, in the form of a loan) than other legal business entities. A C Corporation’s owners, unlike those of a sole proprietorship or partnership, have limited financial liability to the company. Because their personal property cannot be used in any legal action against the C Corporation, most owners cannot lose more than they paid for their shares.
C Corporation – Disadvantages
C corporations, on the other hand, have a variety of drawbacks. Corporation profits are, therefore, taxed twice. Before profits are dispersed to shareholders, corporate income is taxed as a legal entity for the first time (at a rate of 21%). Because dividends are the shareholder’s income, they are liable to personal income tax for the second time.
Large firms should apply for Corporation C classification. For entrepreneurs looking to raise capital.
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