5 Advantages of C Corporations

Some legal and financial experts claim that C corporations are one of the best business structures for a business. A C corporation offers various legal protections, and there are some tax benefits that shareholders can enjoy. These have become so popular over the years, that it's common for business owners to form them in states where their business is not located in order to maximize tax benefits, such as in Delaware and Nevada. There are 5 advantages of C corporations you should be aware of:

1 - Tax Free Fringe Benefits

The healthcare reform law requires many small businesses to offer health insurance to employees. Whether health insurance is offered voluntarily or by law, owners and employees of C corporations are allowed to deduct the costs without taxation. For example, disability insurance and group life insurance premiums may be deductible and tax free. 

2 - Separate Entity

One of the main advantages of C corporations is the corporate veil that surrounds the entity. The shareholders are shielded from personal liability for legal actions brought against the corporation. For example, if a director enters into a contract and acts in a negligent manner, and a consumer or other business sues the corporation, they cannot go after the homes, cars and other personal assets of the shareholders. State laws in most cases view the corporation as a separate entity. The only exception to the rules is if the corporation is a fraud, and only exists as a shell to prevent personal liability. In that case, a judge may "pierce the corporate veil," and a shareholder or shareholders can be held personally liable.

3 - Corporation Continues when Shareholders Leave

Some business structures must dissolve if one of the founders or partners leaves. C corporations don't dissolve for that reason. The corporation continues despite these events, whereas state laws may require other entities to shut down. Shareholders can sell their shares back to the corporation or sell it to other shareholders.

4 - Ownership of Property

C corporations can own property. A shareholder doesn't have to buy real estate in their name, which can have an impact their personal finances and affect whether they can buy their own property, such as a house or investment property. Keep in mind that property owned by the corporation can be awarded as damages in a lawsuit if a plaintiff who sues the corporation wins.

5 - Lower Current Tax Rate

Up to $50,000 of the profits is taxed at a lower current rate of 15 percent. If you earned profits under other types of business structures for the same amount, such as with a limited liability company, the tax rate would be higher, and almost doubled.

C corporations work well for some businesses, but for other businesses, it's not the best entity. It's important to work with a small business accountant and business law attorney to see which entity is best for your business goals and personal circumstances.

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