The corporation is a sturdy, time-tested business structure. It provides the best protection against liability. It’s also the vehicle that’s most attractive for equity investors, as there are no limits to the size of investments or number of investors and shareholder protections are well defined. In addition, C corporations may offer employees tax-deductible benefits such as medical insurance and qualified retirement plans. They’re the most robust structure for raising capital as there are no limits on the number, national origin, or nature of shareholders. Also, keep in mind, that C corporations benefit from the recent tax reform taking effect in 2018, by receiving a reduction in tax rate from 35% to 21%.
Assuming a corporate structure places a significant burden of time and resources on owners. You have to create a board of directors, hold regular meetings, and record notes of the proceedings. Other key business processes, from accounting to human resources, may also be subject to regulatory guidelines on both the state and federal levels. C corporations are subject to double taxation—once on corporate profits and a second time on dividends paid to shareholders. In addition, business losses are not deductible for shareholders (unless they sell their shares at a loss).
Consider your liability protection needs. If they warrant forming a corporation, then consider the issue of double taxation. If you’re a start-up—with the possible exception of some high-profile ventures, as well as restaurant chains and manufacturers—double taxation may be a high hurdle to overcome. However, it may be a worthwhile structure to consider as your business grows.