Which Entity Should I Choose? – Part 3: C-Corporation

This is Part 3 in a series on types of entities available when forming a business, and concerns C-corporations. Previous parts involved the limited liability company (LLC) and the S-corporation.

C-corporations are created by filing Articles of Organization with the Secretary of State. Management is by a Board of Directors and governed by the corporate bylaws. Annual shareholder meetings are required. Although the filing fees for a corporation are comparatively less than for other types of entities, the overall administrative burden can be greater. Therefore, on balance, C-corporations can be less flexible, and sometimes more costly, to manage than other types of entities.

Like the LLC and S-corporation, the owners of a C-corporation enjoy limited liability. Therefore, only their contributions into the corporation are at risk of loss (with some exceptions when the corporate veil is pierced). This can potentially include falling share prices as well as the depletion of capital contributions.

While the LLC and the S-corporation feature pass-through tax treatment, C-corporations have two layers of tax exposure, first at the corporate level and secondly on distributions to shareholders.

With C-corporations, multiple classes of stock are permitted, which allows for differing voting rights and preferential distributions. Also, its shareholders are not restricted by number, or to United States citizens and residents. These attributes can make the C-corporation an appealing type of entity when investment capital will be sought, or when numerous investors are anticipated.