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The pros and cons of a C corp business structure

On Behalf of | Dec 21, 2023 | Business Formation |

In the early phases of development of a Texas business, you’ll make many decisions, such as what to call your company, what products or services you’ll provide and how many employees (if any) you will hire. You’ll also want to determine which business structure best fits your needs. If protection of personal assets is a top priority for you, then you might want to register as a corporation, or C corp, for short.  

Many people mistakenly believe that only businesses with hundreds of employees can become corporations. This is not true. In fact, there is no law that requires you to hire employees if you register as a C corp. However, there are several laws regarding how you report taxes if your corporation does hire employees. Registering as a corporation provides more personal asset protection than you would have if you were to register as a limited liability company (LLC).  

There are several benefits to registering your Texas business as a C corp 

Determining which business structure best fits your company’s needs and your ultimate business goals as an owner is a critical step in the development phase. The following list shows several benefits to registering as a C corp:  

  • As a corporation, you can raise capital by selling stock in your company.  
  • Your business has a lower risk of audit as a corporation than it would as a sole proprietorship.  
  • There may be self-employment tax savings available. 
  • A C corp provides the strongest protection against personal liability.  
  • A corporation can continue operating as shareholders sell shares or leave the company.  
  • A corporation has perpetual existence, meaning it continues to exist if the owner dies, unlike a sole proprietorship, which ceases to exist if the owner dies. 

As with most business structure options, there are a few potential downsides to registering as a corporation, as well. It is wise to seek experienced guidance before registering your business 

Potential downsides of registering as a corporation 

When weighing the pros and cons of a C corp business structure, consider the issues shown in the following list as potential downsides: 

  • It costs more to form a corporation than it does to register under other business structures. 
  • Corporations can be “taxed twice,” meaning your company will pay taxes on its profits, and shareholders may also have to pay taxes on their dividends.  
  • Laws are complex regarding business operations, taxes and other issues. 

Before ruling out a C corp option for your Texas business, it is good to know that there are often ways to overcome some of the disadvantages. For example, there may be options available to avoid or reduce double taxation.  

Support is available for Texas business owners 

A business structure is not set in stone. If you register as one type of business, then later determine another option might be better, you can make a change. It is always best to seek financial and business law guidance ahead of time, so that you can make informed decisions and choose the business structure that is right for your company.