What Are the Benefits of a C Corporation?

by Cindy Hill
Corporate shareholders enjoy protection from liability for the debts of the company.

Corporate shareholders enjoy protection from liability for the debts of the company.

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A C corporation is an ordinary business corporation of the same type used by most big-named, big-business companies. The letter "C" simply refers to the section of the Internal Revenue Code under which regular corporations are taxed. Forming a business as a C-corp entails more complexities than most other types of business entities, but a C-corp also has many advantages for businesses both large and small.

Entity and Reputation

A corporation is an independent legal entity that has an existence separate from its shareholders, even if it has only a single shareholder. It can employ people, enter into contracts, own property and build up credit in its own name. Corporate managers can register the corporation to do business in other states beyond the state in which it is incorporated, allowing the company to grow to a national business. Because of these features, a C-corp is able to develop its own reputation and nurture a market identity separate from its owners, making it one of the most prestigious business types.

Liability

One of the primary advantages of using a C-corp entity for your small business is that corporate shareholders are not typically personally liable for business debts. While a corporation, like any other form of business, will not wholly insulate you from personal liability for your own illegal or harmful actions, it will provide you with some protection from business creditors and the creditors of your co-owners or fellow shareholders. Corporate owners are not usually personally liable for the business's debts and liabilities. However, if you personally guarantee corporate debt, or have failed to follow the formalities of keeping corporate books and management separate from your personal financial accounts, courts may find you liable for corporate obligations.

Transferability and Continuity

Ownership in a corporation is evidenced by holding shares of stock that can be freely transferred unless restricted by the consent of the existing shareholders. Business ownership can be transferred by simply signing over the stocks to someone else, without having to sign bills of sales for all inventory and equipment and draft new deeds for real estate. A corporation has a perpetual life and can continue to do business in its corporate name as long as someone is around to operate it. A corporation continues to exist even after shareholders change or pass away, as opposed to sole proprietorships or partnerships that die with their owners. This enables a shareholder to pass on his interest in the corporation to his beneficiaries.

Investment Capital

Shareholders own a right to receive a portion of the profits of a corporation, but the corporation itself owns its assets, equipment and inventory. A corporation is structured to enable shareholders to easily raise money from third parties who have an ownership interest in the company but are not necessarily entitled to participate in daily management. The flexibility of corporate ownership is more attractive than other forms of business entity to venture capitalists who may provide start-up or expansion funds, and once a corporation grows large enough, it may choose to attract more funding by trading its shares on public stock exchanges.