What is a primary disadvantage of a C Corporation?

A primary disadvantage of a C Corporation is double taxation. This occurs because C Corporations are treated as separate legal entities for tax purposes. This means that the corporation itself pays taxes on its income at the corporate tax rate. After the income is taxed at the corporate level, any dividends distributed to shareholders are taxed again on the individual shareholders’ tax returns. This dual taxation can lead to higher overall tax burdens for the corporation and its shareholders compared to other business structures, such as S Corporations or Limited Liability Companies, where income is typically taxed only at the personal level.

This aspect of double taxation is often a significant consideration for business owners when deciding on the appropriate structure for their organization, as it can impact the overall profitability and attractiveness of C Corporations.