What Is a C Corporation?
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It's the most common type of corporation in the U.S. – and with good reason. C corporations (c corps) offer unlimited growth potential through the sale of stocks, which means you can attract some very wealthy investors. Plus, there is no limit to the number of shareholders a c corp can have.
Advantages of a C Corporation
There are many benefits of a c corp. Below are just a few that stand out.
- Limited liability. This applies to directors, officers, shareholders, and employees.
- Perpetual existence. Even if the owner leaves the company.
- Enhanced credibility. Gain respect among suppliers and lenders.
- Unlimited growth potential. The sky's the limit thanks to the sale of stock.
- No shareholders limit. However, once the company has $10 million in assets and 500 shareholders, it is required to register with the SEC under the Securities Exchange Act of 1934.
- Certain tax advantages. Enjoy tax-deductible business expenses.
Disadvantages of a C Corporation
Having unlimited growth comes with a few minor setbacks.
- Double taxation. It's inevitable as revenue is taxed at the company level and again as shareholder dividends.
- Expensive to start. There are a lot of fees that come with filing the Articles of Incorporation. And corporations pay fees to the state in which they operate.
- Regulations and formalities. C corps experience more government oversight than other companies due to complex tax rules and the protection provided to owners from being responsible for debts, lawsuits, and other financial obligations.
- No deduction of corporate losses. Unlike an s corporation (s corp), shareholders can't deduct losses on their personal tax returns.
C Corporation vs. S Corporation
Both c and s corps offer limited liability protection. Both require Articles of Incorporation to be filed. And both comprise shareholders, directors, and officers. There are lots of similarities, but they differ in the complex realm of taxation and corporate ownership.
As we mentioned above, c corps are subject to double taxation while s corps are pass-through tax entities, allowing them to avoid being taxed at the corporate level and again on shareholders' personal income taxes.
When it comes to corporate ownership, c corps have no restriction on ownership, which goes back to our point about them having unlimited growth potential. But s corps don't have that luxury as they're restricted to no more than 100 shareholders. Also, s corps cannot be owned by a c corp, other s corps, LLCs, partnerships, or many trusts. But a c corp has no limits on who or what can be a shareholder. Compare corporations and LLCs with our business comparison chart.
How to Form a C Corporation
- Choose a legal name and reserve it, if the Secretary of State in your state does that sort of thing (not all do).
- Draft and file your Articles of Incorporation with your Secretary of State.
- Issue stock certificates to the initial shareholders.
- Apply for a business license and other certificates specific to your industry.
- File Form SS-4 or apply online at the Internal Revenue Service website to obtain an Employer Identification Number (EIN).
- Apply for any other ID numbers required by state and local government agencies. Requirements vary from one jurisdiction to another, but generally your business most likely will be required to pay unemployment, disability, and other payroll taxes – you will need tax ID numbers for those accounts in addition to your EIN.
C Corporations (c corps) file IRS form 1120 to report corporate income to the Internal Revenue Service (IRS). The IRS taxes company profits at corporate tax rates and dividends paid to shareholders at individual tax rates. For this reason, you may hear tax professionals refer to "double taxation" of a c corp.
C corps can elect "pass-through" taxation by applying to the IRS for status as a Subchapter S Corporation (IRS form 2553). The s corporation (s corp) provides the same protection from personal liability. However, owners can report their share of profit and loss in the company on their individual tax returns. The s corp files IRS form 1120S to report income.
S corps have a number of restrictions. Most notably, only U.S. citizens or permanent residents may own an s corp. An s corp may not have more than 100 shareholders.
What is double taxation?
C corps file IRS form 1120 to report corporate income to the Internal Revenue Service. The IRS taxes company profits at corporate tax rates and dividends paid to shareholders at individual tax rates. For this reason, you may hear tax professionals refer to "double taxation" of a C Corporation.
Where should I incorporate my business?
Most companies form their corporations in the state in which they will primarily operate or in the state of Delaware in order to have access to its courts and business-friendly laws. Advantages of forming a corporation in your home state include:
- Fewer complications, if you only plan to operate the business in your home state.
- No need to pay franchise taxes or file annual reports in more than one state.
- Less cost.
Many companies conduct business throughout the United States and abroad. An s corp with business locations in multiple states may incorporate in a single state, then register to do business in other states. This means that s corps must formally register, file annual reports, and pay annual fees in every state in which they conduct business.
Remember, you must separately apply for s corp tax status through the IRS by filing Form 2553.
- Do I need an attorney to form a corporation?
- What forms are required to form a c corporation (c corp)?
- Is a c corp required to have a registered agent?
- What do I need to do after I form my c corp?
- What is the organizational structure of a c corp?
- Can a c corp own an LLC?
- Can a c corp own an s corporation (s corp)?
- Can the personal asset protection provided by forming an c corp be taken away?
Do I need an attorney to form a corporation?
No. You can prepare and file necessary paperwork yourself, or you can use incorporate.com to incorporate your business. If you are unsure if incorporating will benefit your business, please call us at 800-818-6082, our Business Specialists are happy to answer your questions.Back to Top
What forms are required to form a c corporation (c corp)?
Articles of Incorporation or Certificate of Incorporation, depending on the state.Back to Top
Is a c corp required to have a registered agent?
Yes. State laws require all corporations to maintain a registered address with the Secretary of State in each state where they do business. The person or company located at that address, known as the Registered Agent, must remain available during all business hours. A Registered Agent receives and forwards important legal documents and state correspondence on behalf of the business.Back to Top
What do I need to do after I form my c corp?
Most states require c corps to file annual reports and pay franchise taxes to maintain their good standing. Failure to file annual reports and pay franchise taxes can result in fines, notices, and the inability to conduct business.
State laws require c corps to hold annual meetings of shareholders and directors and record meeting minutes. Owners and directors of a c corp use corporate minutes to reflect changes in management and important corporate activities.
incorporate.com can assist you with all of your internal documentation needs (link to Compliance Coaching services). Additionally, almost all state, county, and local governments require c corps to complete business license, permit, and tax registration applications before beginning to operate.Back to Top
What is the organizational structure of a c corp?
The company is owned by shareholders, who elect directors. The directors set a vision for the corporation and are responsible for the management of the corporation. The officers and managers hired by the directors are responsible with carrying out the vision on a day-to-day basis.Back to Top
Can a c corp own an LLC?
Since a c corp is its own legal identity (separate from that of its owner), a c corp can own an interest in an LLC.Back to Top
Can a c corp own an s corporation (s corp)?
An s corp can own a c corp. However, a c corp cannot own an s corp. Much of this has to do with the structuring of a c corp vs an s corp. To learn more about what is an s corp and how it differs from a c corp, please visit the s corp page.Back to Top
Can the personal asset protection provided by forming an c corp be taken away?
Generally the owners of a corporation cannot be held liable for the debts and obligations of the corporation. However, if owners treat the corporation as an extension of themselves – sometimes referred to as "disregarding the corporation form" – such as, by commingling personal and corporate funds or making important decisions without holding board meetings or passing resolutions, then creditors can attempt to hold owners liable for the debts and obligations of the company – often called "piercing the corporate veil." The "corporate veil" can also be lost if a corporation is terminated by a state for failure to file required forms or failure to pay required fees and taxes.
The Corporation Company can assist your company maintain its "corporate veil" by providing you with required corporate forms and documents for you to complete and by assisting you with required state filings.Back to Top
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