Now that the first tax season under the new rules has passed it’s a good time to start thinking about how you can change the way you’re operating. If you’re like most of our friends, family, and business law clients, this past year’s taxes have not been kind to you. In fact, according to our very non-scientific and overly personal survey, we all got reamed by the new tax plan.
A few of our big tax law and accountant friends have noted that, unless your company is filed as a C Corporation, you likely had to pay more this year than any since the last big tax overhaul in the 80s. That got us to thinking about the benefits of filing as a C Corp and how it might benefit you and our other clients thinking about changing the way they’re set up.
C Corp Advantages
There are many benefits to incorporating as a C Corporation, most of which means paying less in taxes, which is the hope, right! Here are a few of the big ones:
- The potential for unlimited growth. As long as you can keep your shareholders and investors happy, then you can keep going back to them for investments and credit.
- Your liability is limited. Everyone from Employees up to Directors has their liability limited and may not be held personally responsible for any negligence of the company (though the company itself CAN be held responsible.)
- Lives Forever (if needed). Even if you or another owner decides to leave the company, the company will continue.
- Capital Options. If you need to raise capital you can sell shares in the company. If you need to reduce debt, you can buy back shares.
- Tax Advantages! Business expenses are tax-deductible, and there are a lot of things that you can be considered a business expense, including employee and director benefits (healthcare, childcare, a company car maybe?) As long as you have a business plan and everything is laid out properly, there is a lot that can be built in.
There are, of course, more advantages, and a good lawyer (Us! Call Us!) can walk you through those. You also need to make sure your business plan, receipts, and other paperwork are all in order. We can help you with that as well.
Disadvantages of Being a C Corp
Of course, and as with anything in life, there are disadvantages to filing as a C Corporation as well. Some you can mitigate, so you can’t. Here are a few of the bigger issues with filing as a C Corp:
- Pricey to Start Up. Rather than an LLC, or a Sole Proprietorship, setting your business up as a C Corp usually costs more with your state. It also requires Articles of Incorporation and other paperwork that needs to be registered.
- Regulations. The Federal Government institutes more oversight on C Corps than other corporation types. This is to ensure that their financials are in order and that shareholders aren’t harmed by the company.
- Double Taxation. Corporate profits are taxed and shareholders’ dividends are also taxed. If you’re the only shareholder and you pay out dividends, then you’re taxed on both. But, as anyone holding shares in Facebook knows, dividends aren’t a guarantee.
As with the benefits, there are other disadvantages to filing as a C Corporation, but in our opinion, the advantages usually outweigh the disadvantages.
How to Form a C Corporation
The steps to forming a C Corp vary slightly by state, and the best way to find out about the quirks of the state you’re filing in is by contacting a business attorney who specializes in corporate filings. That caveat aside, here are some of the points that are pretty standard across the board.
- Select and reserve your company’s legal name with the Secretary of State. In Florida, you can do this through the Sunbiz portal.
- Once that is done you need to file your Articles of Incorporation.
- Next, you’ll need to issue stock certificates to any and all shareholders.
- If you haven’t already done so, you need to file for a business license and any other industry-specific certificates and licenses with the state and local authorities.
- Make sure you request an EIN (Employer Identification Number) from the IRS (Internal Revenue Service) by filing form SS-4.
- Request any other ID numbers and filing you need to with the state and local governmental entities.
If you’re ready to get down to it, contact us now. We can review where we are in the process and see what help we can offer. Whether you’re just getting your company started, or you’re changing the filing status of your decades-old business, we can help you through the full process and make sure you and your future are taken care of.