When determining a type of organizational structure you will adopt for your latest business venture, or if you are interested in restructuring your current company, you will have several options to choose from. Each organizational structure entails its own levels of liability and responsibility for the owners or shareholders, as well as IRS tax requirements. Whether you are engaged in an S-Corporation, a C-Corporation, or some type of partnership, Geddes & Company, P.C. has the capabilities to help your organization with its accounting and tax preparation needs.
The C-Corporation archetype is what has come to be associated with big business, however C-Corporations come in many different shapes and sizes. There is no minimum on the size of a business required to form a C-Corporation. C-Corporations can range from a single person to thousands of individuals, with annual profits of several thousand dollars, to several billion. In order to structure as a C-Corporation a business must file articles of incorporation with the federal government.
C-Corporations exist as stand-alone entities with many of the same responsibilities and rights as a person. C-Corporations are not pass-through entities, and therefore company owners face double taxation, first at the corporate level, then again at the individual income level. C-Corporations are taxed directly by the IRS through a separate corporate tax rate, and can sue and be sued. Most new businesses start as either a sole-proprietorship, partnership, or S-Corporation, then choose to become incorporated as a C-Corporation once the business begins to produce a steady profit.
Forming a C-Corporation offers a variety of benefits not found in other business structures, such as the S-Corporation, General Partnership, or LLC. Below are some of the benefits associated with incorporating your business as a C-Corporation.
Venture capital is term used for businesses, firms, or individuals with vast sums of money who are looking to invest in a company in return for a stake in the company's future profits and ownership structure. Venture capital injections normally entail investments of several million dollars, and are most often targeted at companies classified as C-Corporations due to this business type's more flexible stock options and ownership structure.
Registering a company on a national stock exchange is a privilege exclusively reserved for the C-Corporation. Publically traded companies stand to attract more investment capital than S-Corporations, partnerships, or sole-proprietorships, and also generally attract more attention and interest in the possibilities for growth.
C-Corporations enjoy a number of tax benefit that other business structures do not. A C-Corporation has the ability to offer employees and shareholders a variety of perks and fringe benefits that are exempt from taxation. Additionally, the C-Corporation has unique ability to accrue income for growth that will be taxed a separate, much lower rate, than regular corporate income.
Although the C-Corporation option does present many exciting opportunities for capital accumulation, growth, and investment that other business structures are lacking, there still are some tangible disadvantages to operating a C-Corp. Several of these disadvantages are delineated below.
As previously discussed, the C-Corporation does not operate as a pass-through entity, and is therefore subjected to two separate rates of taxation. Income from the corporation will first be taxed at the corporate level, at a rate that is sometimes relatively high. This income, after it is dispersed to owners/shareholders, will then again be taxed at the individual level according to personal income tax policies.
C-Corporation ownership entails a greater burden in terms of documentation requirements and paperwork, than other simpler business typologies. A C-Corporation must hold regular, formal meetings, and formulate regular reports for the federal, state, and even local government on company finances, projections, profits, salaries, benefits, and shareholders. Additionally, during tax season C-Corporations face a higher level of scrutiny from the IRS, making it ill-advised to proceed as a C-Corporation owner or operator without a quality accounting service such as Geddes & Company, P.C., at your disposal.
If your company is considering restructuring as a C-Corporation, or you are considering starting a new business as a C-Corporation, reach out to Geddes & Company, P.C. for expert advice and accounting services. We have over 25 years of experience forming new corporations and managing the finances of existing corporations during transition. Corporate and personal income taxes are notoriously difficult. Don't go it alone, or trust your business to a cut-rate accounting service. Contact our experts today.