What is a potential disadvantage of a C corporation?

A C corporation is subject to complex tax regulations due to its distinct legal structure. Unlike sole proprietorships or partnerships, C corporations face corporate income tax, and when they distribute dividends to shareholders, those dividends are taxed again at the individual level. This phenomenon is often referred to as “double taxation.” The tax filing requirements for a C corporation are also more intricate, necessitating detailed reporting and compliance with various federal and state regulations. This complexity can pose challenges for owners, particularly those without extensive business experience or resources to manage the tax implications effectively.

The other options present characteristics that do not apply to C corporations. For instance, owners of C corporations typically enjoy limited liability, meaning their personal assets are protected from business debts and liabilities. Additionally, shareholder ownership is not restricted, as C corporations can have an unlimited number of shareholders, including both individuals and other entities. Lastly, the setup process for a C corporation is generally more involved than that of simpler business structures, requiring formalities such as articles of incorporation and corporate bylaws. Thus, option B accurately highlights a key disadvantage of operating as a C corporation.