C Corporations

Although C corporations and S corporations are formed the same way, the similarities end there.
The C corporation has none of the restrictions that apply to an S corporation:
  • Number and type of shareholders
  • Classes of stock
  • Deductibility of certain expenses
While this may make the C corporation more attractive at first, the drawback is in its taxation: A C corporation has to pay taxes on its profits, and only after that can it pay dividends to its shareholders. For example, if a C corporation earns $100, it may pay $20 in taxes and then pay $40 of its remaining funds in dividends to its shareholders. These shareholders must then pay ordinary income tax (40% or more when you combine federal, state, and local taxes) on those dividends. That double taxation often makes C corporations a bad deal.
Smaller businesses, though, can manage their finances (through compensation, benefits, and other investments) to break even each year, and thus eliminate the corporate-level tax. This should put the owners close to the same position they would be with other entities, but it requires extra attention that may be better used elsewhere.
Business lawyer Steve Sneiderman can explain to clients when a C corporation is the right fit. For instance, if you want your business to go public on the New York Stock Exchange, it has to be a C corporation. In addition, C corporations offer some advantages in terms of deductibility of certain expenses.

Contact Steve today to learn if a forming a C corporation is the right choice for you.