The C corporation (C corp) is one of the most well known business structures out there. It's limited liability features and the relative ease of transferring ownership make it a desireable entity type for many businesses. However, because C corps are subject to double taxation, often times an LLC or S corp, which passes profits and losses directly through owners, can be a better choice for the solo entrepreneur. Before you choose to start your business as a C corp make sure you understand the tax and administrative implications of doing so you can be sure it aligns well with your goals.


Sarah is an entrepreneur with a scalable idea that will revolutionize the clean energy industry. She is in the early stages of forming her business but knows she will have to immediately seek venture capital money to make her idea a reality. For Sarah, forming a C corp could be a good option since she knows she will need to have multiple classes of stock, isn't planning to pay any dividends for the foreseeable future and doesn't care about offsetting her personal income with losses from her business.


Ted recently quit his day job to drive full time for Lyft. Ted knew he wanted to incorporate so he could limit his personal liability should something happen on the road. A friend suggested that Ted start a C corp to mitigate his personal liability. While this is true, Ted could be putting himself in an unfavorable tax position; His corporation would need to pay tax on all of his rideshare earnings, he would need to pay tax again on any dividends paid, and he would need to pay personal income tax on his wages from the business. If Ted were instead to do business as a LLC or S corp, he could still enjoy the benefits of limited liability but the earnings from his business would only be taxed once.


Ingrid is an independent real estate agent who formed her business as a C corp. Unfortunately, she found that it was a lot of extra work for her to draft corporate bylaws, organize and document an annual meeting, and file special state reports and a separate tax return. Sine Ingrid's business is so small, she may have been better off organizing as a single member LLC.


Patricia is an independent artist who sells animal sculptures on Etsy. Her company is organized as a C corp. In her first year of business she generated a $15,000 loss. Because C corps are not pass through entities (like LLCs or S corps), Patricia would not be able to offset her individual tax liability with any portion of the $15,000 loss. Rather, she would need to carry the loss forward to future years where she could use it to offset future corporate profits.


Prabhu is an independent engineer who successfully created a self-driving car. Prabhu organized his business as a C corp. Recently, business slowed due to fierce competition and Prabhu was unable to pay some of the vendors who supply his corporation. The vendors subsequently sued his company. Fortunately, since Prabhu organized using a business structure that limits his personal liability, likely all he stands to lose from the lawsuit is his investment in the business, not his home or any of his personal assets, which would be fair game if Prabhu was a sole proprietor.


  • The most distinct feature (and one of the largest downsides) of C corporations is double taxation. If you organize your business as a C corp, your C corp will pay federal, state and sometimes even local taxes on its earnings (although corporate tax rates may be lower than individual rates), then you will pay tax on any dividends the corporation pays you, effectively taxing the same earnings twice. Additionally, if you are an employee of your C corp you will also have to pay individual income taxes the wages the company pays you, however, you will not be subject to self employment tax.
  • If you are a shareholder in a C corp your personal liability for corporate obligations is limited, even as a sole owner. Typically, only your investment will be at risk unless you fail to put enough money into your business, you commingle personal and business assets, you engage in fraudulent behavior or fail to follow corporate formalities.
  • Keep in mind that if you start a corporation you may be subject to some additional administrative requirements, compared to LLCs and sole proprietorships. corporations may need to draft bylaws, appoint directors, hold board meetings, document actions taken during board meetings and file separate tax returns, to name a few.
  • If your goal is to seek outside investment or institutional money to grow your company, organizing as a C corp could be beneficial since transferring ownership in a C corp is comparatively easy (common stock, preferred stock, stock options, etc.), your investors won't have to worry about pass through income and you'll have the right organizational structure in place down the road if you're lucky enough to have an IPO.
  • While there can be some benefits to C corporations, generally, from both a tax and administrative perspective, other organizational structures may be more favorable if you are self employed.

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