Earlier this week, I shared an overservation from my practice: C Corporations are largely overlooked at a solid entity choice for searchers.
The reactions across the board were both intrique, skepticism, and agreement.
In my experience, many advisors are still promoting an older understanding of corporations, specifically “C-Corps mean double taxation, therefore they’re bad.”
While that statement is directionally true in the abstract, it is incomplete, and in many early-stage acquisition scenarios, it leads searchers to prematurely dismiss a structure that can materially improve cash flow, reinvestment capacity, and long-term optionality.
So let me breakdown why I think that C Corporations shouldn't be as overlooked:
The Early-Years Reality Most Searchers Face
In the first several years after an acquisition, most searchers are not optimizing for distributions.
Instead, they are focused on:
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Stabilizing operations
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Servicing acquisition debt
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Reinvesting heavily in growth
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Retaining earnings inside the business
In that context, the classic downside of a C-Corp, taxation at both the corporate and shareholder level, often does not materialize in a meaningful way because profits are not being distributed.
As a result, what a searcher is actually doing is creating certainty for their business rather than welcoming the unknown. What I mean by this is that they are now fixing their taxable income at 21%, the Federal corporate income tax rate, rather than being subject to the whims of variable cashflow and then being taxed at personal income tax rates which can be as high as 37%.
By fixing your tax rate, a new business searcher can guarantee that retained earnings are taxed once at the corporate level and then redeployed into the business. When compared to a pass-through entity, where profits are taxed to the owner regardless of whether cash is actually distributed, a C-Corp can, in certain cases, preserve more after-tax capital inside the operating company during critical growth years.
Strategic Advantages That Often Get Missed
Beyond retained earnings, C-Corps can offer additional advantages that are frequently overlooked in search discussions:
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Cleaner capitalization mechanics for future equity raises or rollovers
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Predictable tax treatment that simplifies modeling during growth and reinvestment phases
- Employment opportunity for the owner to hire themselves within the business itself; something that can't be done in a partnership or single-member LLC
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Structural flexibility for downstream planning, including reorganizations or exit-driven restructuring
Although C Corporations can be more difficult to manuever out of once structured into. With proper planning, entity structure can evolve as the business matures, cash flow stabilizes, and owner priorities shift toward distributions or exit optimization.
1. Cleaner Capitalization Mechanics for Future Equity Raises or Rollovers
One of the most underappreciated advantages of a C-Corp is the simplicity and predictability of its capitalization structure. Equity ownership is represented by shares, which can make issuing new equity, admitting minority investors, or structuring rollover equity far more straightforward than in partnership-based models. This matters materially for searchers who anticipate bringing in growth capital, rolling seller equity forward, or preparing the company for a second round institutional investor.
By contrast, LLCs and partnerships often require bespoke operating agreement amendments, special allocation provisions or guaranteed payment structures to compensate key operators of the business, and complex capital account maintenance to achieve similar economic results.
2. The Ability for the Owner to Be an Employee of the Business
A practical feature of the C-Corp is that it allows the owner to be a W-2 employee of the business, while this is also possible in an S Corporation, we will discuss another time why I am not particularly a fan of S Corporations and frankly you shouldn't be either.
Since the owner-operator can hire themselves within the business, this creates a clean employment relationship that supports salary, benefits, retirement plans, and payroll tax compliance in a way that is simply not available in partnerships or single-member LLCs.
For searchers stepping into an operator role, this structure can bring clarity and discipline to compensation, particularly when balancing debt service, reinvestment, and personal income needs. It also avoids some of the ambiguity that arises in pass-through structures where owners are simultaneously “employers” and “employees” for tax purposes, with compensation governed by reasonableness standards rather than formal employment mechanics.
Finally, in a partnership or disregarded entity structure, all income that is passed through to the ownership is also subject to self-employment taxes, something that doesn't happen in a C Corporation structure.
3. Structural Flexibility for Downstream Planning and Exit-Driven Restructuring
Choosing a C-Corp at acquisition does not mean the structure is permanent. In many cases, it serves as a clean and flexible starting point that can later be adapted as the business matures. Reorganizations, holding-company insertions, or pre-exit restructuring can often be executed more cleanly when the operating entity is already corporatized.
This flexibility is particularly relevant for searchers who anticipate multiple phases of ownership: an initial operator phase, a growth phase with outside capital, and ultimately an exit or recapitalization. The ability to restructure deliberately, rather than reactively, can preserve optionality and reduce friction when timing and leverage matter most.
The Real Takeaway: Don't Sleep on C Corporations!
The core issue I see with many searchers, especially once they have passed the LOI-phase of a transaction is that they have already come to me with an LLC already formed.
In many circumstances an LLC will be an excellent structure for their business and ideal for operations.
At the same time, if as part of your mid-term strategy you are either targeting an exit of one or more of your owners or are planning for a roll-up structure, the conversation surrounding forming your acquisitionCo as a C Corporation should absolutely be had.
The right question is not “Is a C-Corp good or bad?” but rather “What structure best aligns with this acquisition’s cash flow profile, growth plan, and exit timeline?”
That answer can change over time. The mistake is assuming that one entity type is universally optimal without running the analysis against the actual facts on the ground.
Your Next Steps:
Step 1: Outline a mid-term and long-term strategy
Step 2: have a targeted conversation with your lawyer
Step 3: Run the math with a CPA
Until next time,
Josh
