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However, if a business is expecting to incur losses in the beginning, as is often the case, then many businesses choose to start out as an S corporation so that the losses pass-through to the owners, allowing them to deduct losses against other income.

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Obviously, how closely these results would mimic a pure purchase of assets from a C corporation will depend on many factors including negotiations with the buyer.

The bottom line is that undertaking such a sale of “personal goodwill” should be done with great care.

With favorable rates for long term capital gains (15% federal rate for the remainder of 2010), most sellers would prefer to sell stock in their business if it has appreciated in value.

Conversely, most buyers would prefer to buy assets of an appreciated business operating as a C corporation because this allows for the ability to write off the purchase price depending on the allocation of the price amongst the assets.

Which leads to the downside of selling assets in a C corporation, there are no favorable capital gains rates for C corporations.

Thus, a corporation selling appreciated assets, even if a capital gain is generated, will pay corporate level tax at the marginal corporate rate, which quickly reaches 34% (35% for income in excess of million).If the shareholders wish to be taxed like a partnership, then they would elect the S corporation status.Generally, if the business is probably going to earn profits right from the beginning, then the C corporation would offer more tax saving opportunities and greater funding sources for future growth.Corporation franchise taxes, and the professional help, especially in the form of legal and accounting services, needed to set up and operate the C corporation increases the cost of doing business.Incorporated businesses are 1 incorporated as a C corporation.For example, a corporation may have existing tax attributes to offset a corporate level gain from the sale of assets.