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Limited liability for the
shareholders is the largest benefit for a
corporation. A stockholder's risk of loss is usually limited to
the amount
invested to acquire the stock of the corporation. There are
4 "automatic"
instances where the shareholders are personally liable:
-Fraud
-Bad Faith
-Failure to follow
corporation procedures
-In the fairness of justice
"C" Corporations can benefit from a lower tax rate
than the
income tax rates for individuals. See drawbacks of "C"
Corporations as this profit may not be withdrawn without the imposition of another tax to the
shareholder (the infamous "double tax").
The Dividends Received Deduction allows "C" Corporations
to exclude from tax 70% of the dividends received from another domestic corporation.
This is a huge tax benefit available to "C" Corporations and is designed
to eliminate the possibility of "triple taxation."
Certain fringe benefits are deductible by a "C" Corporation,
that are not deductible by "S" Corporations, such as health and accident
insurance, group life insurance in excess of $50,000, and the costs of meals and lodging
furnished for the convenience of the employer. Of course, for a
"C" Corporation to deduct these expenses, they must be offered on a
nondiscrimination basis to all employees.
A "net operating loss" for a "C" Corporations may be
carried back 2 years or carried forward 20 years.
Certain "C" Corporate shareholders may be entitled to a
special "Section 1244 Stock Loss" allowing them to deduct $50,000/$100,000 (single/joint)
against ordinary income from the sale, exchange or worthlessness of corporate
stock. There are numerous qualifications for a shareholder to deduct this
"Section 1244" stock loss. To name the two most prominent qualifications:
(1) the stock must have been originally issued by the corporation the
shareholder and (2) the total capital contributions of all shareholders to the
corporation must be under $1,000,000.
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