The type of “Corporate Form” that you should use when you are setting up a new company is an individual decision. What’s right for you can be very different than what your closest competitors use. It’s one of the primary reasons that I’ve preached the importance of speaking to an attorney when forming a company. Even if you’ve already started up your company, it’s not too late to speak to an attorney.
Today’s Wall Street Journal has a good article about startups adopting a “C corporation” as their corporate structure. The Georgia business featured at the beginning of the article is using a C corporation. They are taking advantage of a low corporate tax rate coupled with a capital-gains tax exemption.
The C Corporation Strategy
The Wall Street Journal article lays out the way the strategy can play out,
The strategy is particularly advantageous for business founders who expect to start small, keep earnings inside the company, make annual profits and then cash out. If a taxpayer holds C corporation stock for five years and follows the technical rules, capital-gains taxes on a subsequent sale get erased-on gains up to $10 million or 10 times the original investment, whichever is greater.
Recently, the preferred corporate strategy of many of my clients has been partnerships, S corporations, and LLCs. These forms use a pass-through system for taxes, creating only 1 layer of taxation. But with the current administrations 2017 changes to the tax law, the corporate tax rate was lowered and a C corporation has become more attractive. A concern is how long it will last. The tax rate could soon be changed again by Congress.
The article points out, however, that many people are not changing their corporate structures to the C corporation. Rather, it’s new startups and businesses taking advantage of these tax law changes.
Next Steps
If you are thinking of starting a business or already started your business and want to make sure you’ve chosen the best corporate form, let's set up a Legal Strategy Session to discuss the process and what documents would be best tailored for your company.
