What is a C-Corporation? | Defining a C-Corporation

A C-Corporation is the most common type of business structure and is known to be the standard corporation. Directors lead the C-Corporation as a sort of council that decides on important business decisions. It has officers that manage the different elements and departments of the C-Corporation and shareholders that own a percentage of the C-Corporation as shares of stock. A C-Corporation can have multiple stock types, an unlimited number of shareholders, the liberty to sell stock freely, and infinite potential for growth. Read on and learn about the C-Corporation so that you may make an educated decision on whether it’s right for your business.

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C-Corporation Taxes, Tax Rates, and Tax Forms

A C-Corporation has a corporate income tax rate of 21%. C-Corporation owners must file both personal income and business taxes separately. You—as a shareholder, will be taxed on your earnings and your C-Corporation on its profits. This double taxation is a big determining factor to whether forming a C-Corporation is appropriate for your business. A Limited Liability Company (LLC) and an S Corporation have what is known as ‘flow-through’ or ‘pass-through‘ taxation. Those type of entities report income on a personal income tax return. Single-member LLCs file a Schedule C Form 1040 and S Corporations file on a Schedule K-1 Form 1120S. Both may be liable to employment taxes if they have employees. C-Corporations file on Form 1120, Forms 940 and 941 for employment taxes, and may even pay franchise taxes in some states.

C-Corporation Advantages | The Pros

Let’s go over some of the pros and cons of the C-Corporation, starting with the advantages. First, the protection of personal assets such as your bank account or home through having limited liability status. Secondly—access to funding through a variety of stock options with the potential to sell them to an unlimited number of shareholders. It’s also easier for C-Corporations to get funding from investors and lenders, being that it may be safer to lend or invest in a C-Corporation over a smaller entity like a Sole Proprietorship. C-Corporations are better at hiring and retaining high-level talent by offering them stock options. C-Corporations have the rights privileged by the Fifth and Fourteenth Amendments, among the freedom of speech granted by the First Amendment. It’s also very simple to form a C-Corporation.

C-Corporation Disadvantages | The Cons

As for some of the disadvantages of the C-Corporation, it depends on several factors concerning your business. In which case it may be more beneficial to start an S Corporation or LLC instead. The first and biggest shortcoming is the double taxation present for C-Corporations. Depending on your state, you may also have to pay the franchise tax. You and the other shareholders also can’t deduct any corporate losses on their taxes—wherein S Corporations you could. C-Corporations are also a bit more complicated to maintain. You may need to pay annual state fees and file annual reports, have a corporate seal and book, keep corporate minutes of shareholder meetings—among other records of corporate operations. C-Corporations in California have to pay ‘The California Franchise Tax’ of $800 a year. Most states have annual filing requirements for C-Corporations to maintain an active status. Failure to submit a filing can result in your entity getting dissolved or even the possible loss of your C-Corporation’s name.

Forming, Starting, and Establishing a C-Corporation

You can choose to use an online service to start a C-Corporation, and typically, you’ll get the articles of incorporation and an Employee Identification Number (EIN). They may not or cannot provide you with everything else you need: For starters, elements of a corporate kit that satisfy federal and state demands; such as the minute book, stock certificates, ownership registration, and by-laws. They also might not be attorneys and cannot provide you with the legal advice necessary to prevent negative legal implications. By giving you a complete corporate kit and rendering free legal advice we ensure that you don’t: risk money, time, getting sued, or the loss of your business licenses. We’ve helped over 265,000 clients incorporate or form a company. We give you our ‘110% lowest price guarantee’ so that you get a fair deal while being a defense for your business that shields you from losses and negative legal implications.

LLC vs C-Corporation

An LLC, like a C-Corporation, has limited liability protection for all its owners—known as members in an LLC. Single-member LLC’s, for tax purposes, are pass-through and disregarded as separate entities from their owner. The member reports business income on personal taxes. An LLC could choose to be taxed as a C-Corporation by filing Form 8832. Both the LLC and C-Corporations may be liable to pay employment taxes. An LLC doesn’t have shareholders or stocks; they exchange and transfer financial interest through a membership certificate. A member may only transfer financial interest—not management rights unless stated otherwise in the operating agreement. The LLC elects members in the Certificate of Organization during its formation. Beyond that, new members can be chosen by the unanimous vote of all members or based on the rules within the operating agreement. Nearly all of the LLC’s business rules—from the method of accepting new members to profit distribution—can be declared in the operating agreement. If you’re thinking of starting an LLC, a legal entity—our law firm can assist you with forming an LLC. At Spiegel & Utrera, P.A. we provide the client with a Complete Corporate Kit and legal advice for your formation.

S Corporation vs C-Corporation

In regards to taxes—an S Corporation is the most tax-advantageous class of corporation you can own! You have to meet some requirements to form an S Corporation, but you’ll get to enjoy distinct advantages. Like a C-Corporation, you can have shareholders and stocks, but you can’t have more than one class of stock and 100 shareholders. You also can’t establish an S Corporation if your business is a bank or insurance company. Like the C-Corporation and Limited Liability Company, you also receive the limited liability status. You get pass-through taxation, and only pay taxes for your business income on a personal return; avoiding a C-Corporation’s double taxation. Though if you have employees, you might have to pay employment taxes as well. We understand that incorporating online involves some research; when you’re ready, get someone on your side that can answer all your legal questions and give quality service at a great price!

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