A significant disadvantage is double taxation. By the time the shareholders receive their after-tax shares of the profits, there will have been two levels of tax – a tax on the corporation and a tax on the dividends. For this reason, many people choose a different entity – such as an S corporation or a partnership.
Another disadvantage is that liquidation or sale of the corporate assets will also result in double taxation to the shareholders, if there is any taxable gain. C Corporations are also less flexible than partnerships when it comes to special allocations of profits or expense items. Losses stay in the corporation and cannot be passed through to the shareholders.
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