What Is a C Corporation?
A C corporation (or C-corp) is a legal structure for a corporation wherein the owners, or shareholders, are taxed separately from the entity. C corporations, the most pervasive of corporations, are additionally subject to corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, making a double taxation situation.
C-corps can measure up to S corporations and limited liability companies (LLCs), among others, which likewise separate a company's assets from its owners, however with various legal structures and tax treatment. A more up to date type of organization is the B-corporation (or benefit corporation), which is a for-benefit firm yet unique in relation to C-corps in purpose, accountability, and transparency, yet aren't different by they way they're taxed.
How C Corporations Work
Corporations pay corporate taxes on earnings before distributing remaining amounts to the shareholders as dividends. Individual shareholders are then subject to personal income taxes on the dividends they receive. Albeit double taxation is an unfavorable outcome, the ability to reinvest profits in the company at a lower corporate tax rate is an advantage.
A C corporation is required to hold no less than one meeting every year for shareholders and directors. Minutes must be kept up with to display transparency in business operations. A C corporation must keep voting records of the company's directors and a rundown of the proprietor's names and ownership rates. Further, the business must have company bylaws anywhere nearby of the primary business location. C corporations will file annual reports, financial disclosure reports, and financial statements.
Sorting out a C Corporation
The most vital phase in forming a C corporation is to pick and register an unregistered business name. The registrant will file the articles of incorporation with the Secretary of State as per the laws of that state. C corporations offer stock to shareholders, who, upon purchase, become owners of the corporation. The issuance of stock certificates is upon the creation of the business.
All C corporations must file Form SS-4 to get an employer identification number (EIN). Despite the fact that requirements differ across purviews, C corporations are required to submit state, income, payroll, unemployment, and disability taxes. Notwithstanding registration and tax requirements, corporations must lay out a board of directors to supervise management and the operation of the whole corporation. Designating a board of directors tries to determine the principal-agent dilemma, in which moral hazard and irreconcilable circumstances emerge when an agent deals with benefit of a principal.
C Corporations are the most common type of corporation, versus a S Corporation or a LLC.
Benefits of a C Corporation
C corporations limit the personal liability of the directors, shareholders, employees, and officers. Along these lines, the legal obligations of the business can't turn into a personal debt commitment of any individual associated with the company. The C corporation keeps on existing as owners change and individuals from management are supplanted.
A C corporation might have numerous owners and shareholders. In any case, it is required to register with the Securities and Exchange Commission (SEC) after arriving at specific thresholds. The ability to offer shares of stock permits the corporation to get large amounts of capital which might fund new ventures and future extensions.
- C corporations limit the liability of investors and firm owners since the most that they can lose in the business' disappointment is the amount they have invested in it.
- C corporations are ordered to hold annual meetings and have a board of directors that is decided on by shareholders.
- A C Corporation legally separates owners' or alternately shareholders' assets and income from that of the corporation.