Advantages of C Corp vs S Corp for a Family Business
Becoming a corporation is a great way to limit the amount of liability that you have for your business. It also helps you have a higher level of credibility with your customers. Whether or not a C Corp or an S Corp is the right choice largely depends on the size of your business and the different goals that you have for it. To file your business as an S Corp or a C Corp you can file an Articles of Incorporation with your Secretary of State. To learn more about this process and some tips for making a decision Forbes offers advice in an article entitled, “C or S Corporation Choice is Critical for Small Business.”
Advantages of a C Corp
It Is Automatic
Many people do not realize that when you file for a corporation that all corporations are automatically C Corp. However if you want to have an S Corp then you have to file it as a S Corp from the beginning. So it is automatic that your business will be a C Corp when you incorporate it.
When a business owner incorporates their business and turns it into a C Corp they are not longer liable fully for the business if it should have problems. In addition with a board of directors there is someone else who helps make the decisions for the business on a regular basis.
One of the best things about a C Corp is that there can be a lot of owners. If you want your business to have thousands of shareholders then this is the option that you will want to choose. Not all shareholders will vote and depending on the types of shares that are offered there can be different levels of responsibility for those who are on the board. An S Corp cannot have more than 100 shareholders.
If you have always dreamed of your business being traded on the open market then you will want to choose the option of making into a C Corp. An S Corp cannot be publicly traded because there are not enough shares for the public to purchase and take advantage of.
Another huge advantage is that if the business profit is $75,000 or less then the tax rate is much lower than what it would be for an S Corp. So when you have a smaller business that might not yield the most profit. the C Corp can provide this huge advantage for the business income.
Shareholders are not responsible for paying taxes on income that they do not receive. With a S Corp the shareholders might have to pay taxes on income that was made even if they did not receive that income. Sometimes the income is reinvested in the company and then the shareholders would not receive that income.
In regards to family oriented businesses, Nationalfamilysolutions.net is a blog that could help if you are thinking about splitting a business in a divorce.
Of course with all of the advantages come some disadvantages that you should discuss with a professional before you make your choice. The main disadvantage with the C Corp in comparison to the S Corp is that the C Corp profits are double taxed. This means that the business will pay taxes on their profit margin. Then the shareholders are required to pay taxes on the profits that they receive from the shares. There is also a lot of paperwork and formality with the C Corp. There must be regular shareholder meetings, corporate minutes that are very well detailed, and a board of directors.