Part of getting a new business off the ground may include choosing a structure type and embarking on the formation process. For some, structuring as a corporation may provide helpful benefits.
Examining the pros and cons of structuring your business as a corporation, or C corp may help you decide if this formation type best suits your situation, needs and business objectives.
Pro: Liability protection
According to the U.S. Small Business Administration, structuring as a corporation provides you and any other owners the strongest personal liability protection. This may lift the risk to your personal property or assets in the event of business bankruptcy, lawsuit or other such actions.
Con: The costs of formation
Unlike other structure types, which may have no costs to establish, setting up a C corp typically comes with several expenses. As a new business owner, you may have to pay various fees, including formation fees, when establishing a corporation.
Pro: Ownership flexibility
When it comes to the shareholders, or people who own stakes in your business, you have greater flexibility than other structure types may offer. You may not have to reform if a shareholder sells his or her shares or decides to leave the ownership group the way that other formation types may require. Additionally, organizing as a corporation may allow you the opportunity to one day sell or to take your company public.
Con: Corporations must pay taxes
Corporations must pay income tax on profits, which differs from other structure types that pass the business profits through to the owner’s personal taxes. In some situations, this may result in double taxation of your company’s profits – through the corporate taxes and through taxes on dividends paid out to shareholders.
Ultimately, you must consider the various factors, your circumstances and your goals to determine the best formation type for your business. How you choose to structure your business may affect everything from what it takes to get your fledgling company up and running to your everyday operations and the longevity of your business.
