Should the Disadvantages of C-Corp Make You Reconsider Starting a Business?

Starting a business is an exciting venture and can be a viable pathway to fulfilling your dreams. However, before you choose a C-corporation, it's imperative you have a clear understanding of the benefits of a C-Corp as well as the disadvantages of a C-Corp.

Failure to understand and consider the potential disadvantages of C-Corp can quickly morph your dream business into an unpleasant nightmare. Let's take a deeper dive into the key disadvantages of C-Corps that you should consider prior to going this route.

C-Corps Are Under Greater Scrutiny

In part due to the very complex way in which C-Corps are taxed, they tend to be watched more closely than other types of businesses. Federal and state governments receive a lot of money in taxes from C-Corps, so it is in their best interest to make sure that all regulations are being adhered to.

However, you can take huge strides to ensuring your business is in compliance with all filings and laws by partnering with John F. Dennehy CPA. Just as you specialize in providing the product or service you offer, the accountants at John F. Dennehy offer decades of experience helping business owners navigate the sometimes confusing regulatory landscape.

C-Corp Can Suffer "Double Tax"

Owners of a C-Corp pay a tax on company earnings, and shareholders must pay a tax on dividends received. This double-dipping tax scheme can be costly, especially among companies in the highest tax brackets. Because of this, it's important for C-Corp businesses to work closely with an experienced team of tax accountants to devise a comprehensive strategy to lower the overall corporate tax rate.

You Could Lose Control Over Your C-Corp

It is important to remember that even though you may have established a C-Corp, you may wind up not running it. This is because a C-Corp is owned by the shareholders. If you manage to own the majority of shares, you have a greater say — but your voice is not the only one taken into consideration when decisions are made.

The board of directors elected by the shareholders are empowered to make decisions for the company. Many decisions will require the consensus of the shareholders themselves. All of this leads to the distinction between owning a business and running one.

If you are an entrepreneur interested in forging a path in the business world, taking your company and watching it grow, and managing all aspects of it; you may find yourself on a different path if you choose a C-Corp business entity. While you may still be considered owner of the company, you might be frustrated by the lack of control you have over it.

C-Corps May Have Less Liability, but More Accountability

It is true that a C-Corp may shield you and your workers from legal liability in many cases, but a C-Corp is very much a public company. This means regular, truthful reporting to shareholders has to occur. Depending on the performance of the company, this can be quite stressful. Even the tiniest misstep is bound to be met with anger from the shareholders.

Also, the names of the corporate officers are required to be made public. For good or bad, one of the disadvantages of a C-Corp is it may expose flaws in your entrepreneurship skills to the world. However, you can overcome this C-Corp disadvantage by partnering with an experienced accounting firm for guidance and expertise.

C-Corps Have a Complicated Taxation System

Aside from the unpleasant double tax mentioned earlier, C-Corps cannot deduct corporate losses. This is just one of the many accounting challenges associated with a C-Corp. Other potential taxational disadvantages of a C-Corp include: