C-Corporation verses S-Corporation The current fast moving environment has impacted almost every aspect of doing business. Today, incorporation when starting a business has become a very sensitive matter that greatly influences the effectiveness and success of any business. In Griffin’s view for instance, among its positive impacts is that it can provide business owners with limited personal liabilities and credibility in the eyes of customers (Griffin, 2011). Today, the two most common options entrepreneurs have when it comes to incorporating their businesses are the S Corporation and the C Corporation. According to Brouwer (2011), the effectiveness of either of these options depends on the size of the business and the objective of its …show more content…
Advantages of a C corporation Basing on the above definition, a C Corporation has a number of advantages which include:-
• Limited liability – one of the most renowned pulling factors that influence business owners to incorporate their businesses is the limited liability that corporate status affords. Apparently, in the current dynamic and fast moving environment, the greatest fear of a partner or sole proprietor is the fact that their life’s savings can be jeopardized by sudden overwhelming debts or a law suit against their business (Griffin, 2011). As such, the protection that a C corporation offers to its shareholders and investors through limited liability or corporate veil comes across as one of its most treasured advantage. Perhaps this explains why most small scale business owners today are opting to incorporate their businesses rather than purchase expensive liability insurance.
• Raising capital – another advantage of a C corporation is that it can easily raise capital when compared to a sole proprietorship or a partnership. This is mainly because this kind of corporation usually has stocks to sell. According to Etuk (2012), most investors are often lured with the prospect of dividends in instances the corporation makes a profit. Practically, this eliminates the necessity of C
A corporation is a separate legal entity that possesses distinctive liabilities and privileges than that of their members or shareholders. As an investor, a corporation’s advantage is liability for their own investments especially in risky investments (Kubasek, et al., 2012, p. 760). Among the various types of corporations for Betty to select from, an S corporation is an enticing venture for new entrepreneurs given that it grants limited personal liability for debts, sharing of corporate profits, and taxation relief. Double taxation is a main disadvantage of C corporations but not for S corporations. The General Corporation Law (Corp C §§100-2319) treats S corporations similarly to partnerships for taxation purposes.
The advantages of leveraging the company is the money they would save on the tax shield, higher EPS, higher dividend payouts, and extra cash available for expansion and repurchase of shares.
C corporations are able to have unlimited shareholders, which is probably an important characteristic to large companies. (S corporations, for example, may not have more than 100 shareholders.) C corporations can also be owned by non-citizens or other business entities, where S corporations can only be owned by individuals who are US citizens.
The company can afford to invest more fixed costs and variable costs (shifting assets from “A” to “C”) for additional “C” capacity thereby maximizing capacity utilization.
Instructions: You should prepare a legal memorandum to your client providing tax advice on the proposal set forth here. Be sure to include citations to code sections, regulations and other authorities that you rely upon in reaching your conclusion. The paper generally runs about two to three pages and is due the last day of class or May 10, 2011..
“Morality cannot be legislated, but behavior can be regulated. Judicial decrees may not change the heart, but they can restrain the heartless” (Martin Luther King, Jr., Strength to Love, 1963). These words of Martin Luther King, Jr. speaks volume to the society that we find ourselves. It is very rare to come across business owners like Frank who wants to do what is right; first of all, by God and secondly by the laws of the country. According to Henry Cheeseman, a limited liability company is an “unincorporated business entity that combines the most favorable attributes of general partnerships, limited partnership, and corporations” (Business Law: Legal Environment Online Commerce, Business Ethics, and International Issue). The overall advantages of a limited liability company include personal liability protection, business liability protection, no ownership restrictions, flexible tax statues, no separate tax returns, no double taxation and flexible profit distribution.
Choosing a Corporation/Company Structure - the business structure of a company/ corporation is highly recommended, it has the flexibility to gain more capital, or credit capability and assets used as security. Based on the Corporation Act 2001 (Cth) AC 22, a corporation is another legal entity with their own legal rights, duties and responsibilities separate to the individual or owner of the company (Harris, Hargovan & Adams, 2013, pp 229). The risk and consequences are one of the principal considerations of choosing a company structure (Harris, Hargovan & Adams, pp 50). Based on the “Corporate Veil” Liability is owned by a separate legal entity and not to the extent of the owner, for instance, the debt of the company is not a personal liability, but the company. This is further explained in the case below.
* A broader capital base gives the company more access to credit which gives the company an option to venture into new business opportunities
By focusing on the corporation multiple correlating components are effected such as, shareholders, employees, suppliers and the environment in a positive way. Raynor gave an example of a company that focus on the interest of the corporation, like Costco Wholesale. Costco focus on the employees moral and the consumers wants. Therefore, the company is in a place to continue to buy from its suppliers. The shareholders received continuous amounts of profits. When a consumer goes to buy an item the consumer is then introduced to the corporation. If the corporation does not cater to the need of the consumers. Then the corporation profits would decrease. Without consumers corporations would not exist. I believe that the idea of focusing on the corporation and it long term stands would bring greatest amount of profits. Increasing life expectancy of a corporation would be more profits to
In order for an informed decision to be made in regards to appropriate business structure for any business it is necessary to understand each business structure separately and any attempt to understand business structure must consider the C-corporation as a baseline against which to compare subsequent business structures. A C-corporation is a business organized as a separate entity from the owner or owners of the business that requires the observation of certain formalities. In Texas these formalities include adopting bylaws, maintaining a record of accounts, issuance of stock, recording the issuance and transference of stock, recording minutes of board of director and shareholder meetings, as well as maintaining a record of current and past shareholders (Tex. BOC § 21). It is important to remember that corporate formalities will require time and expense to maintain and every attempt should be made to comply with these requirements to protect the liability limitation of the corporation’s shareholders, officers, and owners.
There are several advantages of offering common stocks. First, by issuing common stocks the company can raise a large sum of money (Anonymous, etd). Secondly, the board of directors can decide on the amount of dividend paid to the stockholders (Anonymous, etd). Thirdly, the company needs not pay the stockholders if it is not doing well (Anonymous, 2006). The company also does not have a maturity date to repay the fund (Anonymous, 2006). There is also less restriction to follow in
There are many advantages for a company going public. As said earlier, the financial benefit in the form of raising capital is the most distinct advantage. Capital can be used to fund research and development, fund capital expenditure or even used to pay off existing debt. Another advantage is an increased public awareness of
The advantages to a LLC are: 1) Reduction of personal liability. A sole proprietor has unlimited liability, which can include the potential loss of all personal assets. 2) Taxes. Forming an LLC may mean that more expenses can be considered business expenses and be deducted from the company’s income. 3) Improved credibility. The business may have increased credibility in the business world compared to a sole proprietorship. 4) Ability to attract investment. Corporations, even LLCs, can raise capital through the sale of equity. 5) Continuous life. Sole proprietorships have a limited life,