From Idea to Exit: Structure – A Deep Dive on C-Corps

Progress is driven by entrepreneurs like you. Every day, you take risks, moving quickly, adjusting to an ever-changing commercial environment. With one slip-up, legally, your progress can be halted. That is why it is important to start your business from a strong position.

As we discussed in the previous post, A Guide to Choose The Right Business Entity , the first step to setting up a business is deciding what entity type to set up. There are three major entity types that businesses can choose from: an LLC, a C-Corp, or an S-Corp. Each type has its own set of advantages and disadvantages. In this article, we will focus on C-Corps and their strengths and weaknesses to help you make an informed decision for your business. Seeking the guidance of an experienced business lawyer can help ensure that you select the corporate structure that best reflects the goals and needs of your business.

What Is the Purpose of a C-Corp?

The purpose of a C-Corp is to protect each individual owner’s assets from seizure if the corporation gets sued. C-Corps were created to replace traditional partnerships where each business partner was liable for the debt and mistakes of the business. This meant that if the business is sued, each individual partner’s personal assets, such as their home, could be seized to pay the debt. Instead, a C-Corp protects each individual partner’s personal assets allowing them to engage in business deals, they may not have otherwise if their personal assets were on the line.

What Are the Tax Options for C-Corps?

There is only one taxation option for the C-Corp, meaning that this entity is less flexible than an LLC in that regard.

What Are the Pros of a C-Corp?

  • Stock Types : C-Corps offer many different options when it comes to equity, particularly in stock. A C-Corp can have multiple different types of stock, such as common, preferred, voting or nonvoting stock. This also gives you options to allow your business to grow while giving various incentives for people to invest in your company.
  • Employee Stock Options : A C-Corp allows you to offer your employees stock options in the company as part of their compensation package. Another advantage to this is that giving an employee stock options makes them invest in the success of the business in a way that they may not otherwise have been.
  • Qualified Small Business Stock : Another benefit of forming a C-Corp is that its stock can qualify as Qualified Small Business Stock (or QSBS). If your business’s stock qualifies as QSBS, this potentially allows its owners to save up to $10 million in capital gains taxes or 10 times your adjusted base for the stock.

When examining the benefits of creating a C-Corp, it is important to consult with a qualified business attorney who can help you examine the goals and purpose of your business to give you advice and determine which entity type best fits your needs.

How Do You Qualify for Qualified Small Business Stock (QSBS)?

In order to qualify for QSBS, a business must meet the following general criteria:

  1. The stock must be originally issued, meaning that it comes directly as an issuance from the company. It cannot come from a different partner or individual as a sale or transfer.
  2. The stock must be held for a period of five years. This means that to qualify for the QSBS, the owner or investor in question must be willing to wait rather than get a quick return on their investment.
  3. The stock in question must either be purchased for value or accepted as payment for services rendered.
  4. Finally, 80% of the assets of the business must be used in a qualifying trade or business.

What Qualifies as a Qualifying Trade or Business?

Under 26 USCS § 1202, the IRS defines a qualifying trade or business as “any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees” or is otherwise engaged in the business of finance, investment, banking or another similar business. An experienced business attorney will be able to help you determine if and how your business qualifies if you wish to take advantage of this option.

It is important to discuss both the goals and purpose of your business with your business attorney as well as your exit strategy to determine whether using the Qualified Small Business Stock option makes sense for you.

What Are the Downsides to Choosing a C-Corp.?

As with each of the three major types of corporate structures, C-Corps have their downsides that go along with the benefits.

  • Double taxation : One of the biggest downsides to a C-Corp is the double taxation that exists within it. This essentially means that both the corporation and the individual who receives dividends on the profits pay taxes on those profits to the IRS. For example, if a company makes $1 million in profit in a year, they pay 21% tax on the net profit. If they then pay out the rest of the profits to their owners and stockholders as dividends, those individuals pay taxes at whatever tax bracket they belong to on top of what the business has already paid. Therefore, if dividends on profits are going to be paid out every year, a C-Corp may not be the best option for your business. However, there may be a hidden benefit to selecting a C-Corp. even with the double taxation if you intend to keep profits within the business and your owners and shareholders are in higher tax brackets than the 21% paid by the corporation. Therefore, it is imperative to consider the tax implications of each type of entity when deciding which corporate structure to form for your business. Seeking the advice of a qualified business lawyer is critical to helping you successfully examine all of your options and make the best decisions for you and your business.
  • No Passthrough Losses : Another downside to forming a C-Corp is that there are no passthrough losses for the owners. For tax purposes, losses occur when a business spends more money than it earns. While the business itself can claim these losses on its taxes under a C-Corp, the owners cannot claim those losses on their personal tax returns.
  • Required Formalities : In order to form a C-Corp. and protect the individual owners’ personal assets, a C-Corp must have a Board of Directors with elections and meetings. The Board of Directors is responsible for making decisions for the business and must be consulted anytime the business wants to make a critical decision. The business must also have a yearly shareholder meeting in which shareholders who hold voting shares can vote on various aspects of business, including the election of members of the Board of Directors. If a C-Corp is sued and has failed to comply with these regulations it can mean that the C-Corp loses its protection and the individual owners can become liable for the liabilities of the business.

What Types of Businesses Are Best For C-Corps?

The businesses that tend to benefit most from using the C-Corp structure are those businesses seeking to eventually offer an Initial Public Offering (or IPO). In an IPO, a privately held company begins to sell stock to the public on public-traded stock exchanges. The benefit of an IPO is that a company begins to be publicly traded and they can use that as their main source of raising capital. Given the flexibility with the different types of stock a C-Corp can offer, this makes it an ideal corporate structure for those businesses seeking to be publicly traded.

Another ideal candidate for the C-Corp structure is a high-growth startup looking to obtain backing from investment firms or venture capitalists. Investment firms tend to look favorably on businesses formed as C-Corps because the investment packages tend to be simpler and the growth and equity for investors are also easier to understand. It also has tax benefits for charitable or foreign investors. For many investors, the Qualified Small Business is also an attractive option because it allows the investor to save on capital gains taxes provided that they are willing to hold onto the stock for five years.

The Bottom Line

In the end, it is very important for you to choose the business entity that is right for you. Keep in mind how it will affect your business, finances, and legal exposure. And while you choose your business entity, whether a C-Corp or another type, make sure that your CPA and your business lawyer agree with your choice.

As entrepreneur lawyers, we appreciate your path as a business owner. We love working with bold visionaries like you that navigate your industry with purpose. That is why we are here, to help you navigate hidden legal risks so that you can focus on your business.

For any queries and doubts that you have, talk to your business lawyer and tax attorney. In fact, we offer these services and can help you. So, if you need help with choosing your business’s type and starting your business, Freeman Lovell can help you. Feel free to reach out to me at josh@freemanlovell.com or click on the button at the upper right corner of the website to contact us to learn more!

Demystifying FMLA

By Adrienne Langmo • September 12, 2025
If you're working for — or running — a business with under 50 employees, the Family and Medical Leave Act (FMLA) might seem like a distant federal regulation. But for eligible employees and covered employers, it’s a powerful tool for balancing work and life during major health or family events. Here's what you need to know. 🧩 The What The FMLA is a federal law that allows eligible employees to take up to 12 weeks of unpaid, job-protected leave in a 12-month period for specific family or medical reasons, including: The birth or adoption of a child Caring for a spouse, child, or parent with a serious health condition Recovering from a serious health condition themselves Certain military-related family needs The leave can be taken intermittently, in blocks, or in one long swath. During FMLA leave, employers must maintain group health benefits as if the employee were still working. When the leave ends, the employee is entitled to return to the same or an equivalent position. 👥 The Who FMLA is mandatory for employers with 50 or more employees within a 75-mile radius. So, if your business has fewer than 50 employees at a given location, you’re not legally required to offer FMLA leave —but you can choose to adopt similar policies voluntarily. Employees must also meet FMLA eligibility criteria: Worked for the employer for at least 12 months Logged at least 1,250 hours in the past year Work at a location with 50+ employees within 75 miles *State employees may have additional benefits provided under state law. Here, we’re discussing private employers and employees. 🛠️ Employer Takeaways Treating employees appropriately during their FMLA leave and upon their return can present some hurdles for employers and coworkers, particularly when an employee has been on leave for some time and, e.g., projects or programs have evolved in their absence. You don’t have to navigate these situations alone; we can provide your team with the tools and information necessary to smoothly navigate the full FMLA process and avoid any sticky FMLA retaliation or interference claims. And, even if you’re not legally bound by FMLA, offering comparable leave can be a smart move. It builds trust, boosts retention, and shows you value your team’s well-being. Consider crafting a voluntary leave policy that mirrors FMLA protections, including: Clear eligibility rules Defined leave duration Job protection guarantees Coordination with paid time off or disability benefits For small businesses, this means you have flexibility—but also responsibility to communicate policies clearly. Want to overhaul those policies or craft great messaging to your team, give us a call! We’re here to make leave policies less painful and more practical. 📣 Employee Takeaways If you work for a small Utah employer, ask about your company’s leave policies. While FMLA doesn’t require you to use your accrued leave during your FMLA leave, it allows your employer to write into its policy a requirement that you do so. Make sure you read that policy! And, even if FMLA doesn’t apply, your employer may offer benefits similar to FMLA. If you’re dealing with a serious health issue or family emergency, document your situation, give notice as early as possible, and follow internal procedures. Need help understanding those procedures or your rights as an employee? We got your back! ⚖️ Final Thoughts FMLA is more than a legal acronym—it’s a lifeline for employees facing life’s biggest challenges. For Utah employers, understanding the law and choosing to offer similar protections can set your business apart. Whether you're an HR manager, CEO, or a team member, knowing your rights and responsibilities helps everyone navigate leave with clarity and compassion.

Moonlighting, Side hustles, and Non-Competes

By Adrienne Langmo • September 3, 2025
So, you’ve got an employee that wants to teach a night class? Drive for a ride share? Pursue a passion project on the side? That’s great…. Right? You can ensure it’s great for both you and your employee by entering a non-compete, non-solicitation, non-disparagement, and/or non-disclosure agreement and setting clear workplace boundaries . Non-Compete Agreements can help employers do damage control when an employee wants to branch out. Non-competes alone are limited, but when properly crafted and paired with the other agreements listed above, they can provide peace of mind and protection to employers. Utah law takes a close look at these agreements when it comes to enforceability, so don’t go it alone when it comes to crafting one. Boundaries Set boundaries with your employees on the use of their time, your equipment, and your company’s other resources like client lists or IP. And pay close attention with remote or telework employees where boundaries may be squishier. Here’s some examples where lines may get blurred: Can the employee use the office printer, or their allotted printing budget for their teaching gig? What if it’s just a couple sheets of paper? What if it’s their 100-page course outline? Maybe. Do you have an equipment policy that allows employees minor personal usage of the office equipment? Does it define “minor”? Might you want to update that policy if it doesn’t provide the clarity you need? We can help! Can the employee pick up a ride share client in the company vehicle while they’re out running an errand for the company What if it’s their personal vehicle? What if the trip is along the way, no deviation? Definitely not the company vehicle for insurance purposes of carrying a random person around. But otherwise, this raises the charmingly titled legal doctrine of “frolic and detour” where it is much less messy in terms of liability (for accidents, etc.) if the employee does not engage in personal errands while on the clock, when they’re supposed to be completing your company’s business. No double dipping. No frolicking, as tempting as frolicking sounds. Can they email one of the company’s clients with a question that’ll help them move things forward on their side project? Generally, probably not, especially if you have a non-solicitation agreement in hand. But, it may depend on more details than this scenario offers. When in doubt, talk about it with your employee, get an idea of what their end game is, and give us a call if you need a sounding board. Need help handling questions like these, updating policies, or putting together a non-compete agreement? We can help!

Beneficial Ownership Rules

December 28, 2023
Starting January 1, 2024, a new rule took effect requiring all registered legal entities, including limited liability companies and corporations, to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). We wanted to give you a heads up about the rule and give you as much information about what it means to you. What is the rule? The rule, which is called the Beneficial Ownership Information Reporting Requirements (BOI Rule) , comes from the Corporate Transparency Act, which was passed by Congress in 2021. This law created the BOI Rule with FinCEN as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other deceitful ownership structures. Under this new law, FinCEN will permit Federal, State, and local officials to obtain ownership information for authorized activities related to national security, law enforcement, and intelligence. When does the rule take effect? And when do I have to submit a report? The BOI Rule took effect on January 1, 2024 . If your company existed before January 1, 2024, you must file its initial beneficial ownership information report by January 1, 2025 . If your company is formed or registered after January 1, 2024, you must file its initial beneficial ownership information report within 90 days after receiving actual or public notice that its creation or registration is effective. If any beneficial ownership information changes, you will have 90 days from the day of the change to file an updated or corrected report with FinCEN. What if I don’t file a Report? According to FinCEN: “The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.” What do I need to include in the report? The BOI Rule requires that all entities report information about the company, each individual with substantial control over the entity, and each beneficial owner. What information is required to report about the entity? Full legal name of your company and any DBAs names; Complete current street address for your company's principal place of business (P.O. boxes will not be accepted); The jurisdiction of formation or registration; and Tax identification: IRS tax identification number (TIN) and employer identification number (EIN). What information is required to report about the controlling individuals and beneficial owners? The individual's legal name; Individual's date of birth; Individual's residential address; and A unique identifying number from an acceptable identification document (such as an unexpired driver's license, passport, identification document issued by a State or local government or Indian tribe) and the name of the issuing state or jurisdiction. Who is considered to have substantial control of the entity? Examples of an individual that exercises substantial control over the entity are: An individual is a senior officer (President, CEO, CFO, COO, Manager, or other office who performs a similar function); An individual has the authority to appoint or remove certain officers or a majority of directors of the reporting company; An individual is an important decision-maker for the company; or An individual has any other form of substantial control over the company. Who is considered a beneficial owner? A beneficial owner is an individual that owns or controls at least 25% of the entity’s ownership interests. This includes individuals that indirectly own or control 25% of the ownership interest. For example, if Joe is a 50% owner of Parent LLC, which in turn owns 50% of Subsidiary Corp, then Joe beneficially owns 25% of Subsidiary Corp (50% of 50% = 25%). What type of entities will be required to file a report with FinCEN? All domestically formed entities and foreign registered entities in the USA are required to file a report. Types of entities include corporations, limited liability companies, limited partnerships, general partnerships, and any other entity registered with a state Secretary of State or Division of Corporations or other similar office. There are some types of companies that are exempt from the reporting rule, and in general they are companies that already have to report beneficial ownership to another federal agency. The 23 exemptions listed by FinCEN are: Securities reporting issuer, Governmental authority, Bank, Credit union, Depository institution holding company, Money services business, Broker or dealer in securities, Securities exchange or clearing agency, Securities exchange or clearing agency, Other Exchange Act registered entity, Investment company or investment adviser, Venture capital fund adviser, Insurance company, State-licensed insurance producer, Commodity Exchange Act registered entity, Accounting firm, Public utility, Financial market utility, Pooled investment vehicle, Tax-exempt entity, Entity assisting a tax-exempt entity, Large operating company, Subsidiary of certain exempt entities, and Inactive entity. Can you help me with my company’s report? Yes! We are happy to help prepare and file your company’s BOI Rule report with FinCEN before the December 31, 2024 deadline. We offer a flat-fee service that is discounted based on how early you pay and submit your information. Sign up for our BOI Rule report service HERE. We also know that some situations can be complicated, so please feel free to ask us any questions regarding compliance with the beneficial ownership interest reporting requirements for your company by emailing teamjosh@freemanlovell.com .