businessBusiness Coachingsmall-businessWhat Is a C Corporation?

January 12, 2023by nicoleevansmcda0


Choosing a business structure is one of the most important considerations an entrepreneur makes when launching a new venture. For those who decide against partnerships, LLCs and sole proprietorships, there’s still a decision: What type of corporation do you want to create?

C corporations, often known as C corps, are an excellent option since they give owners more security but cost more money. Considering that C corporations are the most typical business structure in the US. See below for further information about C corporations.

What is a C corporation?

A C corporation is one of the more typical business formats used by company owners.

C corporations are organizations that have been set up to be taxed separately. They are known as C corporations because the Internal Revenue Code’s subchapter C laws and regulations apply to them. Additionally, the majority of C corporations are listed on public markets.

A C corporation is distinct from other forms of organization, such as a S corporation or a limited liability business (LLC), in that it must pay both federal and state taxes. C corporations risk double taxation since both the company and the owners must pay taxes on the profits, whereas other structures simply require shareholders to pay taxes on any income they get.

Owners of a C corporation, however, receive limited liability protection, which protects their private assets in the same way that other forms do, in the event that the business accrues debts or runs into legal troubles. C corporations are comparable to S corporations, LLCs, and B corporations, which function with differing goals, transparency, and accountability but are taxed similarly.

Who owns a C corporation?

C companies are owned by shareholders, each of whom owns stock in a business. C corporations permit an unlimited number of investors, in contrast to other structures that place a cap on the number of stockholders.

The choice of the company’s board of directors is one of the major duties of the shareholders. The board is in charge of selecting the company’s day-to-day managers and officers, who must at the very least include a president and secretary. The board also determines the company’s strategic direction.

Additionally required to attend meetings and record minutes is the board of directors. Although more frequent meetings are permitted, the C corporation regulations call for at least one annual meeting of the shareholders and directors. The rules of the business and any merger proposals may be approved at the meetings by the shareholders.

C corporations must appoint a resident agent in addition to electing board members. In any legal actions conducted against the company, the summons or petition must be served to the resident agent.

Pros and cons of C corporations

C companies have advantages and disadvantages just like any other type of entity. The specifics of your company will determine if the advantages outweigh the disadvantages.

  • Liability protection: The structure’s limited liability ensures owners are not held personally responsible for business debts or lawsuits brought against the firm.
  • Tax advantages: C corps can deduct tax expenses.
  • Funds raised: Since C corporations can have an unlimited number of shareholders, they have an advantage over other structures in raising money when needed. A C corporation simply must sell more stock in the company if more capital is needed.
  • Perpetuity: C corporations can live on perpetually, even as ownership changes hands with the sale of shares.
  • Double tax: Under this structure, both the business and each individual owner pay taxes on profits garnered during the year. Companies can avoid double taxation by reinvesting any profits back into the business.
  • Tax in all states they do business: C corporations are subject to taxes in all states in which they do business. Tax attorneys are an absolute must for C corporations, and extensive recordkeeping to demonstrate compliance with all applicable state and federal laws.

When to incorporate as a C corporation?

Incorporating as a C corporation may be a smart business move in a number of circumstances, such as the most recent adjustments to tax liabilities. Three of the most common situations are listed below:

1. When you desire protection

Directors, officers, stockholders, and employees are all covered by the C corporation’s limited liability. This implies that if the corporation is sued or has a debt, lawyers cannot seize your personal assets to pay out the debt or settle the litigation. Contrast this to sole proprietorships, where your assets are at danger if the business is sued, and your money is the same as that of the business.

2. When you want your business to last

C corporations are separate legal entities that can resist ownership changes; they do not disintegrate when an owner quits the company. For example, if two persons jointly hold a C corp and one of them decides to resign, they can sell their shares without having to shut down the company. However, in a comparable circumstance, other corporate entities might dissolve.

3. When you have a limited budget

Since C corporations can raise capital by issuing shares of stock, they are frequently chosen by ambitious business owners who don’t have a sizable startup budget. You’ll probably get valuable investments if you have a great business idea and can persuade investors of its viability.

How to start a C corporation

If becoming a C corporation is right for your business, these are a few steps you will have to take:

  1. Choose a name. The first step in setting up a C corporation is choosing a name for your business. Most states require that it isn’t similar to one already in use by another company.
  2. File articles of incorporation. Once you’ve selected an original name, you must fill out and file the Articles of Incorporation form, also known as a Certificate of Incorporation, with the secretary of state’s office. The form spells out the basics of the business, including the name, address, purpose and incorporators.
  3. Hold a board meeting. Once approved for incorporation, your business must hold a board of directors meeting in which minutes are recorded and corporate bylaws are drafted.
  4. Obtain licenses. Before finally opening, you must obtain all the state and local licenses necessary to operate.

Contact MCDA CCG, Inc today with any questions about your business.

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