March 21, 2022
How to Determine if Forming a C-Corporation Is Right for You
As you begin your journey, one of the most impactful decisions you can make is how to structure your business. To start, you’ll need to decide if you’ll form a pass-through entity such as a:
- Partnership
- Limited liability company
- Sole proprietorship
C-Corporations Definition:
C-Corporations can range from small companies to organizations with a large number of shareholders and directors. This business structure is unique because it’s a separate legal and taxpaying entity from owners. For this reason, C-Corps tend to be more complex than other business structures. However, they also offer more limited liability protection. A C-Corporation is established with state authorities and governed by the corporate laws of the state where it’s incorporated. To incorporate, you’ll need to register your business name and file articles of incorporation in your state. In addition, c-corporations pay a fee.The Pros and Cons of C-Corporations:
Like any business structure, C-Corps have their advantages and limitations, which you should consider before making a decision.Pro: Personal Liability Protection
According to the U.S. Small Business Administration, C-Corps offer the strongest protection to their owners from personal liability. Because a C-Corp is a separate legal entity, owners and shareholders can’t be held responsible for debts. In addition, they can’t be held liable for any lawsuits brought against the business. In other words, your personal assets aren’t at risk if your business experiences financial trouble. For many business owners, protecting their personal assets is paramount, which is why they opt for this business structure.Con: Administrative Responsibilities
C-Corporations are required to conduct the following actions:- Draft corporate bylaws
- Elect a board of directors
- Hold formal board and shareholder meetings
- Keep accurate minutes from all business meetings
- File an annual report