A C corporation (C-corp), which allows for shareholders, is established and a new 401 (k) plan is set up. The prospective business owner’s retirement funds are used to purchase stock in the new company, with the proceeds from the sale of stock used to fund the new or purchased business.

Can a person constructively own a C Corp stock?

For a complete redemption to qualify as a stock sale, you cannot constructively own any shares after the redemption. Unfortunately, a provision in the Tax Code (Section 318) stipulates that any stock owned by your spouse, parents, children or grandchildren is constructively owned by you (for tax purposes only).

When does a C-Corp become a personal holding company?

“Personal holding company” (PHC) status is triggered when a closely held C-Corp has at least 60% of gross income coming from certain passive income (including interest, dividends, rents, and royalties), and has not made sufficient distributions to shareholders. The IRS is entitled to assess a 20% PHC tax penalty.

Is a C-Corp appropriate for your trading?

A C-Corp is a wrong choice for a trader entity in California with an 8.84% corporate tax rate, but it could be the right choice for a high-income trader in Texas without corporate taxes if he or she retains earnings and can successfully avoid IRS 20% accumulated earnings tax (more on this to come).

What kind of financing can a C corporation get?

Venture capitalists prefer the flexible ownership of the C corp business structure, and some forms of small business financing are only open to C corporations, such as 401 (k) business financing (see below).

Can a C Corp sell shares to a retirement account?

This means that a C-corp is the only business structure that can sell shares of the business to a retirement account legally. This also means that a ROBS won’t work for many common legal entities like a limited liability company (LLC), a sole proprietorship, limited liability partnership (LLP), or an S corporation (S-corp).

Why are C corporations good for small businesses?

Beyond the new corporate tax rate, there are many reasons entrepreneurs can benefit from opting for a C corp. Even with the possibility of double taxation, this business structure can actually help entrepreneurs lower their overall tax burden.