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There are more than 1.7 million C corporations in the U.S. Though this might sound like a lot, this is only a small percentage of the total number of partnerships and S corporations registered in each state.
The number of business owners choosing a C corporation is shrinking. Why? C corporation advantages are only relevant to a specific demographic of business owners.
Take a look at this overview of these top C corporation advantages.
What is a C Corporation?
A C corporation is a legal entity that pays taxes separate from the individuals who own it. C corporations pay taxes on the profit of the business and the owners also pay taxes creating double taxation.
Unlike LLCs or S corporations, C corporations must have annual meetings with their shareholders and directors. Notes must be taken during the meetings and kept on file for transparency.
Each year, C corporations file annual reports and other financial disclosures.
C Corporation Advantages
If C corporations are subject to double taxation, why would any company choose this type of corporation?
The answer is simple. C corporations have more options to raise money.
Most companies that start out as a C corporation have major goals in mind. There are ways to minimize or avoid corporate double taxation with the right accounting team in place.
Think of a tech company looking to raise millions of dollars to launch a new product and hire hundreds of employees. A required annual meeting won’t deter the founders from seeking the resources they need for success.
A C corporation is a great idea for any business owner that has either of the following goals in mind:
Raising Venture Capital
Venture capitalists prefer investing in C corporations because it offers flexibility in arranging ownership of the company. If you have any plans to raise more than $5 million for your business, consider starting a C corporation for your business.
The only type of business entity that can offer shares to the general public is a C corporation. This is a big advantage because it opens the door to unlimited fundraising for the company.
More money means a greater opportunity to reinvest in the company’s products and services.
Choosing Your Corporation Structure
C corporation advantages appeal mainly to large corporations or entrepreneurs with ambitious goals. It’s tempting to choose the legal entity that’s easiest to get started, but you’ll want to think of your present and future business needs to make sure the entity you choose makes sense for you.
It is possible to change your legal structure down the road, but there could be tax penalties or waiting periods that create unneeded financial setbacks. For more information and business tips, check our blog for updates.