An Ultimate Guide On C Corp for Business Owners
The distinctions between a C-corp, an S-corp, an LLC, and a few other business structures should be understood by business owners and those wanting to comprehend appropriate business designations.
What they are, how they differ, and what they can accomplish for your business are all covered in our guide to C-corps.
What Is a C Corporation ( C Corp)?
Corporate income tax is also applicable to C corporations, the most common type of corporation. There is double taxation since business profits are taxed at both the corporate and individual levels.
S corporations and limited liability companies (LLCs), which also distinguish a company’s assets from its shareholders but have different legal forms and tax treatment, can be compared to C-corps. The B-corporation (also known as a benefit corporation) is a more recent type of organization that is for-profit but differs from C-corps in purpose, accountability, and transparency but not in taxation.
Who Owns a C Corporation?
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 selects 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.
Advantages and Drawbacks of Registering as a C Corp
Advantages of a C Corp
- Lesser Liability: Due to the restricted liability of the structure, owners are protected from being held liable for the firm’s debts or legal actions.
- Tax Benefits: C corps may write off their tax costs.
- Fund Raising: C companies have an advantage over other forms in the ability to raise capital when necessary. This is because they can have an infinite number of stockholders. If more capital is required, a C corporation must simply sell more of its stock.
- Perpetuity: Even when ownership changes as a result of the sale of shares, C corporations can continue to exist indefinitely.
Drawbacks of C Corp
- Double Tax: Under this arrangement, taxes are paid on annual profits by both the company and each individual owner. By putting any earnings back into the company, businesses can avoid paying double taxes.
- Tax by State: C corporations must pay taxes in any state where they conduct business. For C corporations, tax attorneys are necessary, as is thorough documentation to show compliance with all relevant state and federal laws.
When Should You Register as a C Corp?
You Require 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. There your assets are in danger if the business is sued and your money is the same as that of the business.
You Want a Lasting Business
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.
You Have Limited Budget
How to Establish a C Corp?
The following actions must be taken if converting to a C corporation is the best course of action for your company:
- Select a Name: Choosing a name for your company is the first step in creating a C corporation. Most states demand that it be distinct from one already being used by another business.
- File Articles of Incorporation: The Articles of Incorporation form, also known as a Certificate of Incorporation, must be completed and submitted to the secretary of state’s office once you’ve decided on an original name for your business. The form outlines the fundamental information about the company, including its name, address, goal, and incorporators.
- Call a Board Meeting: Your company must convene a board of directors meeting after receiving incorporation approval so that minutes can be taken and corporate bylaws may be created.
- Get Licenses: You must acquire all appropriate municipal and state licenses before you may open.
If you think this business structure can benefit you, then register your own C Corp today!