What is a C Corporation?

Whenever you’re starting or planning to start a company, it is essential you choose the right business structure for your venture. However, for new business owners, this first step is the hardest, because there are many types of business structures that a new entrepreneur has to decide on for their company. One such business structure that is the most common type found in the USA is a C Corporation.

A C Corporation is a common business structure that is employed by business owners looking to register their company. It is named “C Corporation” because it is bound by the rules and the regulations that are laid out in subchapter C of the IRS code.

When a C-corp is formed, the business then becomes a legal entity that is distinct from its shareholders – meaning any corporate debts are not the personal responsibility of the shareholders. Instead, shareholder liabilities are only limited to the number of shares each person has bought into the corporation.

In the eyes of the IRS, Corporations are subject to different tax and legal requirements not found in other types of business structures. For example, C Corporations are legally required to pay state taxes on top of federal taxes, which increases the risk of double taxation because both the business and its owners are subject to tax on any profits from the business at the end of the period.

However, C Corporations offer limited liability protection. This means the business owner’s personal assets are guarded legally and will not be pursued by creditors should the company go insolvent or bankrupt.

Is a C Corporation right for my business?

When you set up a C Corporation, you’re basically setting up a company that is owned by its shareholders. Each shareholder owns stock in the company, and thus any shareholder with a majority stake in the company can veto or decide on key business decisions.

Unlike other business structures that have limits on the number of shareholders, C Corporations can have a virtually unlimited number of shareholders and investors.

Your C Corporation must have a board of directors (elected by the shareholders) that will hold board meetings to plan the key strategic decisions and direction the company will go towards. In addition, the shareholders are also responsible for hiring top level company officers and leaders.

Shareholders must also assign an individual to serve as resident agent for the company. This is the person responsible for summons or petitions in the event of a lawsuit against the business.

Pros and Cons of C Corporations:

Tax advantage. Certain tax expenses are deductible for C Corporations

Taxed Twice. Both the business, and individual owners of the C-corp are subject to taxes on yearly profits. To avoid this, profits are commonly reinvested back into the business.

Funding. C Corporations can raise massive amounts of capital quickly whenever required by simply selling more stock

Professional Tax Attorney. For C Corporations, they are taxed in all the states that they do business in.

This means absolutely clean bookkeeping and rigid compliance is a priority for C Corporations, which often require the involvement of a State Tax Attorney.

Protected Liability. Limited Liability protection means any personal assets of the shareholders are guarded against any business debt accrued.

Perpetuity. C Corporations can live on forever, as long as shares are bought and sold in the company.

Conclusion

When you’re incorporating your business as a C Corporation, you can be sure that your business will last for as long as there are shareholders buying and selling shares within your company. For example, if you have two shareholders that own the business when it was registered, and one leaves – they can still sell their shares to an owner without closing the business.

Structuring your businesses as a C Corporation also allows you to raise large amounts of capital in a short time by simply selling more shares of stock in your company. However, your business idea must be a very attractive one, and convince potential investors that you can turn a profit with their investments.

Overall, C Corporations are the most common type of business structure used by small businesses in the U.S for good reason – they are easy to understand, and are subject to pretty straightforward legal and tax requirements on both the state and federal level.