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A C-corp, has its advantages and disadvantages

New Jersey entrepreneurs who have an idea for a business and are intrigued by the prospect of ownership and starting something from the ground up might have great enthusiasm. However, this does not mitigate the importance of having a full understanding of the law. Starting a corporation -- also known as a C-corp has many advantages and disadvantages. First, it is imperative to know exactly what a C-corp is. A C-corp is legal entity that is independent and owned by shareholders. What this means is that the corporation is legally responsible for the business.

A corporation can be more complicated than other businesses because there are fees for administration as well as legal and tax requirements. In general, this type of business plan may be appropriate for a larger company that has numerous employees. The advantages of a corporation include limited liability, the chance to accrue capital, being treated as a corporate taxable entity and that it may be attractive to prospective employees. With limited liability, there are protections to shareholders and their personal assets. Capital is a key part of any business, and selling stock is a way to raise it. Taxes are filed separately from the owners and the shareholders will only pay based on the profits. Employees may be attracted to the benefits packages and enticing employment opportunities that a C-corp could generally provide.

The disadvantages of a C-corp are that it can take a lot of time and money to begin and run it. There are many of the aforementioned fees that go along with it and other business formations do not require them. Corporations are often taxed twice. Initially when the company is profitable and then when the shareholders receive their dividends. Finally, there will be extra paperwork that must be done. These companies are subject to heavy regulations from multiple sources and the records must be kept accurately.

Those who are considering starting a business need to know what a C-corp is and whether or not it is a good strategy for them to use. With any start-up company and business formation, having legal advice is imperative and should be sought moving forward with a C-corp or any other business.

Source: sba.gov, "Corporation (C Corporation); Advantages of a Corporation; Disadvantages of a Corporation," accessed on March 22, 2016

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