Considerations When Forming a C Corporation in CA
Establishing your business as a corporation comes with certain benefits that will protect your business. It can help to protect personal assets from threats like creditors and lawsuits. It can also raise funds when looking to develop the business.
The C Corporation option is often disregarded in favor of S corporations or limited liability companies (LLCs). While there is the potential of higher government compliance and even taxes, the disadvantages are often exaggerated. Below you will find an explanation of the pros and cons of forming a C Corp.
The Pros
The biggest advantage of establishing a C Corporation is that it allows you to raise more money. There is no restriction on the number of stockholders, unlike the limitations of a S Corporation. This structure is ideal for industries that require a lot of resources, such as telecommunications, energy, and transportation.
A C corporation is the preferred structure for obtaining funds from overseas clientele. C Corps are well-known outside of the United States, making it simpler to raise funds from other countries.
Finally, forming a C corporation provides you more strategic alternatives for setting your company’s future course. A C Corporation can be sold down the line to other LLCs, trusts, or C Corporations. S Corporations, trusts, and C Corporations, on the other hand, cannot be held by an LLC, trust, or C Corporation.
The Cons
Double taxation is one of the most significant drawbacks of C corporations. The profits are not distributed to the shareholders, as opposed to an S Corp. Instead, the business’s earnings are exposed to two levels of taxes. Taxes are paid at both the business and individual levels. This is to say a tax is levied on both corporate earnings and profits distributed to shareholders.
A C Corporation necessitates the completion of certain corporate formalities, which can also be a drawback. Meetings must be held on a regular basis, minutes must be kept, and financial records must be submitted. The expense of following the rules might have a detrimental impact on the bottom line. Converting your company to a C corporation offers both advantages and disadvantages. Financial separation of company and personal assets is one of the advantages of forming a C corporation, as is the ability to raise funds. However, the transfer may result in higher taxes, red tape, and paperwork.
The experience of a business lawyer is always helpful when deciding how to incorporate your business.
