When we form a new entity or when a client comes to us with an LLC as their entity, we will talk about the benefits of a C corporation. There are many positives to a C corporation. The main bad thing is that you pay taxes on the income that the C Corporation earns at the corporate level. Then when you pay the income out to the individuals, they pay dividend taxes, so it’s double taxation. The good part is if you do good planning, the amount of money you have left over at the end of the year is very small because the money is paid out as compensation, as bonuses, or in other ways as dividends. But the C corp also holds several other benefits. The retirement plan that you can do on a C corp has higher limits than an LLC or a partnership. Plus the capital gains treatment after you’ve owned your stock for five years is another positive. Additionally, there are significant capital gains tax benefits under the tax laws that are important to consider. Lastly, when you have a C corp, it’s much easier to put deals together with new shareholders. These shareholders understand the entity and how it works. Plus, they get to look at special agreements that change the laws that are already on the books. In our library here, we have a dozen books covering corporate law that are automatically part of your corporation when you file your articles of incorporation (unless you change those rules by contract.) A C corp is really a good entity to work with when you’re out there bringing in more shareholders and raising capital. Most smart sources of capital truly understand the C corp and they’re comfortable with both the C corp and the preferred stock that you issue in a C corp.
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