C Corporations Versus Pass-Through Entities – Foster Financial

June 10, 2019
C Corporations Versus Pass-Through Entities – Foster Financial
C Corporations Versus Pass-Through Entities

When growing your business it is important to have a financial focus. Starting a business venture is in most cases a financial risk with unverified returns. Taking your idea and turning it into a profitable business is no easy task. Many different areas of expertise must successfully combine to make your business profitable. Financial literacy is one crucial area that is often overlooked by entrepreneurs. It is the backbone of any business venture. Choosing the correct business structure will save you money and contribute to your venture’s success.

Business Structures Simplified

C corporation – Pays income taxes directly to the federal government and is its own financial entity.

LLC – Limited Liability Companies are not separate tax entities like C Corporations. LLCs are considered pass-through entities.

S corporation – S corporations are basically LLCs that choose to be classed under a specific chapter of the Internal Revenue Code. These corporations do not pay income tax and must meet the requirements of Subchapter S, Chapter 1 of the IRC.

What Are the Advantages and Disadvantages of C Corporations Versus LLC or S?

C corporations are a separate entity from their owners which allows business owners freedom from liability. C Corporations protect individual owners and shareholders from liability. Personal assets are secure because they are separate from business assets.

Shareholders are not required to pay taxes on share gains until shares are sold.

C corporations’ profits are subject to double taxation because they are first taxed through the direct income tax paid to the federal government, and then indirectly through the personal income tax on dividends paid by shareholders.

C corporations are subject to financial, voting, and leadership structure regulations that can prove expensive for smaller companies to implement.

S and LLC corporations as pass-through entities are not subject to such potentially expensive regulations.

Pass-through entities are not subject to high corporate tax rates.

Learn More About C Corporations Versus Pass-Through Entities

In some instances, C corporations are beneficial to smaller businesses that are seeking growth and investments. Contact our professional team for more help deciding which business structure is right for you.