When deciding whether or not to convert a company to a C-corporation, entrepreneurs should consider whether the level of paperwork and taxation structure is the right fit for the business.
Incorporation adds legal protections that can help keep personal assets secure and possibly reduce taxes. There are several options, including C-corporations.
"Among the different types of business structures available in the U.S., almost all larger corporations with more than 100 shareholders and virtually all publicly traded companies are C corporations," writes Elizabeth Wasserman for Inc. magazine.
LLCs and S-corporations are often more popular among smaller businesses because they don't mandate regular meetings and normally require less paperwork, Wasserman observes. But, if a business faces financial losses, shareholders may take the hit on their tax returns. This is because both LLCs and S-corporations pass profit and losses to individuals with a stake in the company.
Other key benefits of C-corporations include medical reimbursement plans that employees can receive tax-free, added ownership arrangement flexibility for venture capitalists who want to invest in the startup, an easier transition to becoming a public company and the opportunity to collect future expansion earnings at a lower cost.