Which of the following is a downside of C corporations?

Double taxation is a significant downside of C corporations. This occurs because C corporations are recognized as separate legal entities from their owners. As a result, when the corporation earns income, it is subject to corporate income tax on its profits. Then, when those profits are distributed to shareholders as dividends, the shareholders must pay personal income tax on those dividends. This two-layered taxation can be a disadvantage for owners who seek to maximize their income without incurring additional tax liabilities.

In comparison, the other characteristics listed do not represent inherent downsides of C corporations. While C corporations can indeed have unlimited shareholders, this is typically seen as an advantage, as it allows for potentially greater capital accumulation. Voting rights are generally present for shareholders in C corporations unless otherwise specified, and stock options may be more flexible in a C corporation setting, making these attributes more beneficial than limiting.