Corporations are mainly based on money and profit. In the lecture, we discussed the difference between S-Corp and C-Corp. It is mentioned that in a C-Corp there is double taxation which I find to be a huge disadvantage over S-Corp as you won’t make as much money as you should. The cons outweigh the pros in such corporation. When is it better to have a C-Corp over a S-Corp? Can you give an example?
Double taxation is definitely a huge disadvantage, but S-Corps can still be highly limited in terms of ownership. The more owners there are in a company means less risk to them, unless one of the owners is involved in fraudulent/shady activities that could risk the corporation money. As discussed in the lecture, S-Corps can't publicly trade shares nor can they have any foreign shareholders which can limit how much the risk can be spread out amongst shareholders. C-Corps seem to be more versatile and have more room to grow in terms of their ownership and shareholder outreach as compared to S-Corps.
Yes it does seem like the cons overweigh the pros when referencing C-Corp vs. S-Corp. However there are many cases where C-Corp is the best option. For instance, C-Corp is better for international owners because C-Corp does not require the shareholder to be from the United States. Along with that, C-Corp employees can share stocks on stock exchanges as well as buy shares from other C-Corp companies with the company's money so that their company can own part of the other. The double taxation seems to be the only setback. The best thing to do here to maximize benefits in the experience of working for a C-Corp is to just invest when you can and do that wisely, but just keep investing as looking over your shares.
I agree that double taxation is definitely a burden when it comes to C-corp. However, a big advantage is that shareholders are not just limited to USA. This means that it can be harder for an S-corp to receive equity financing since venture capitalist and private funds are usually ineligible shareholders. Another disadvantage of S-corp is the restriction of shares among shareholders. This makes it difficult for shareholders to leave the corporation.
While C-corps require double taxation, they also offer the benefit of deducting employee benefits from taxes. And just like an S-corp, the owner can save on self-employment taxes if the owner also considers themselves an employee. As mentioned above, C-corps are great for businesses that want to expand, not only from an ownership perspective, but also if the business has the potential to become a publically traded company, as it can only become public from a C-corp, not an S-corp. The entity chosen for each business really just depends on the business needs and goals.
It's hard to tell which kind of cooperation is better than another one. They both have successful examples of C-Corp and S-Corp that already exist in the market. When people look at the S-Corp and C-Corp, double taxation becomes a considerable point that terrifies people. However, the government also offered some methods to save the tax. For example, owning stocks as an employee at the same time or the fall of the stock can save money from tax in some ways. Moreover, C-Corp is easier to expand the amount of capital than an S-Corp. This is the most effective way to develop different businesses for a company.
There are a couple of benefits to C-corp if they apply to the business that you plan on creating. If you feel that your corporation might make it big and need unlimited growth potential, C-corp is good because it allows corporations to issue unlimited shares of stock. C-corps also allow for the you issue different classes of stock to accommodate a mix of active participants and investors. This would be beneficial if you wanted to give accessibility and possiblity affordability of your stock to a larger range of people. It would also be beneficial for profit distribution amongst partners in the company. Since S-corps can only have one kind of stock, they must distribute profits proportional to the ownership. However, with C-corps, there is much more flexibility in distributing profits, such as keeping them within the company or distributing them as dividends. This tends to attract outside investors and shareholders. They also allow you to reinvest your profits because C corps let you build wealth in your business without drawing it down as personal income. It will also allow you to save significantly on taxes.
A C-Corp would be better to have over an S-Corp for many of the reasons stated above; S-Corps are in general a lot more restricted in their growth and ownership as a trade-off of having pass-through taxes. In general only individual people are allowed to be shareholders of an S-Corp, whereas C-Corps can be owned by individuals or other business entities. Plus while C-Corps do have to undergo double taxation, they also can sell shares publicly in order to raise money. These stocks that C-Corps sell can be common or preferred stocks, but S-Corps are limited to just one uniform stock class. So overall, C-Corps seem to be preferable if you really want to go big with your corporation as they come with less restrictions, so long as the company can afford the double taxation.
As per this weeks lecture, some clear advantages of a C-Corp over an S-Corp include that there are no restrictions as to the country of origin from which the shareholders must be, the corporation can be publicly traded, it can issue multiple classes of stocks, and has lower personal tax rates. Upon reviewing my peers responses, I believe @sandra-raju also brought up a very interesting point about the flexibility of distributing profits such as through dividends which is an excellent form of passive income.