The traditional corporate form is called the "C" corporation.

This is the standard corporate form for household name firms like McDonalds, IBM, Microsoft, etc. By definition, a "C" corporation is a corporation that has not filed the "subchapter S" form with the IRS - which would make it an "S" Corporation.

The primary benefit of a corporation is that it limits the liability of its shareholders, owners, directors, officers, etc. Generally, these individuals cannot be personally sued for liabilities of the business. An investor can lose their investment, but generally not their personal assets.

Another main feature of a C corporation is that it is taxed as a separate entity from its investors. Unlike a partnership or “S" corporation – which feature “pass through taxation the C corporation is taxed at corporate tax rate levels. Salaries are deductible as business expenses, however, dividends are not.

The "C" corporation has its own distinct benefits and drawbacks, and we will examine each of these in turn.

Advantages of a "C" Corporation

The primary benefit of a "C" Corporation is that it doesn't have to meet all of the technical requirements of an "S" Corporation.For example, an "S" Corporation may only be limited to 75 shareholders, and it may only have one class of stock.Therefore, if you wish to have more than 75 shareholders, or two or more classes of stock, then you would need to incorporate your business as a "C" Corporation.

In addition, a "C" Corporation is taxed at the corporate level, and at corporate rates, which are generally lower than the personal income rates.If you have a business in which you wish to accumulate a good deal of money - i.e. for rapid expansion of your business, or purchase of major equipment or real estate - retaining your assets in the corporation and being taxed at the corporate level may save you money.

However, the corporate tax nature of the "C" Corporation raises one very significant drawback.

Excess earnings from the "C" Corporation that are passed on to the shareholders in the form of dividends are taxed to the recipient at the dividend rate.This raises the possibility of double taxation - where your money is taxed first at the corporate level, and then taxed again at the personal level when it is passed on to you.

Careful tax planning, and consulting with your corporate counsel and CPA can help minimize the likelihood of double taxation.However, if you don't need the extra flexibility of a "C" Corporation, and the corporate tax level is not necessary, you may wish to consider incorporating as an "S" Corporation.