C Corporations: all positive and negative points
Puja Bhardwaj | The CEO Magazine
A C corporation is a business term that is used to describe a unique kind of entity in which profits are taxed separately from its owners as per the subchapter C of the Internal Revenue Code. A C corporation is owned by shareholders, who must elect a board of directors that make business decisions and oversee policies.
There are multiple advantages of operating as a C Corporation:
Drawbacks of C Corporations
While C Corporation comprises multifarious merits, as mentioned above, there are some drawbacks as well, like other kinds of business operation. It is important to know the drawbacks before choosing to operate a C Corp.
C Corporations are the perfect option for a business that sells products, has a storefront and employees with or without a warehouse where it keeps its inventory. C-Corps is not suitable for the businesses that want to hold appreciating assets, like real estate, because of the tax treatment on the sale of these assets. Double-taxation is a common issue with C-Corp. It mainly happens when a C-Corp has a profit left over at the end of the year and wants to distribute it to the shareholders as a dividend. The corporation pays taxes on that profit, but once it distributes the profit to its shareholders, those shareholders need have to declare the dividends they gain as income on their personal tax returns, and pay taxes.
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