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Why You Should Form A C-corp?

Why You Should Form A C-corp?

23.11.2020 03:14 by Clemta

By forming a C-Corp, you will be able to offer stock options to key employees and provide encouragement to keep them in the company. This post will explore the benefits of forming a C-Corp, tax structure of a C-Corp and legal structure of a C-Corp.

You have already decided to incorporate in the US, yet there is one more crucial point regarding your business. The decision on whether to form an LLC or a C-Corporation, might differ depending on your business plan and overall scale-up/exit strategy. Although, LLC and a C-Corp have similarities between, there are a number of differences between the two, including taxation, ownership and formalities. 

Do you plan on scaling-up your business, getting invested and performing an exit/IPO? If so, forming a C-Corp will be the better choice for your business. By forming a C-Corp, you will be able to offer stock options to key employees and provide encouragement to keep them in the company. Comparing to shareholder/member managed structure of an LLC, the graded management structure of a C-Corp is always favored by an Angel Investor and Venture Capital (‘VC’). Despite the annual meeting requirements, having officers and board of directors will grant your company a solid and reliable management structure before the prospect investor. Also, being able to issue preferred stocks in order to give incentives on specific shares that your investor has, will be advantageous for your investors. 

Despite the complexity of taxation for C-Corp’s, tax rates and terms of taxation in a C-Corp may be useful depending on your earning structure. Due to single taxation of an LLC, one might tax the total earning by their liability of income tax, at single level. This single level of taxation rate might rise up to 37%. You can see the income tax rates for 2019-2020 fiscal year on this link. Having a flat corporate tax rate of 21% may be an advantageous side of a C-Corp; yet with the double taxation issue, taxation of the dividends must be taken into consideration.

Depending on your company type; legal, organizational and tax processes will differ in your business life. Overall, a C-Corp might be the right choice to raise money and scale-up in a traditional way. Including the choice of the proper company type, Clemta offers a complete consultancy in terms of your incorporation and post-incorporation procedures. You may check our website and the add required services to your cart with one-click. Clemta will handle the rest for you.