Entrepreneurship and Small Business (ESB) Certification Practice Exam

Which type of corporation is best for international business, even though it may be double-taxed?

1. Sole proprietorship

2. S Corporation

3. C Corporation

4. Partnership

The correct answer is: C Corporation

C Corporations are often the best choice for international business due to their ability to raise capital more easily, their durability in structure, and the limited liability they offer to shareholders. One significant advantage of a C Corporation is that it can issue multiple classes of stock, which can be attractive for attracting foreign investors. While double taxation is a downside—where income is taxed at the corporate level and then again at the shareholder level when dividends are distributed—C Corporations can also benefit from favorable tax treaties with foreign countries. This can mitigate the effective tax burden compared to other structures. Furthermore, the ability to reinvest profits back into the corporation without incurring immediate taxation allows C Corporations to fund international expansions and operations effectively. In contrast, sole proprietorships, S Corporations, and partnerships generally do not have the same operational flexibility, ease of raising capital, or protections from individual liability, making them less suitable for the complexities associated with international business. Sole proprietorships and partnerships expose owners to personal liability for business debts, and S Corporations are limited to U.S. shareholders, which restricts foreign investment options.