A C Corporation is a legal structure where both shareholders and owners are taxed separately from the entity. It is the most prevalent among other corporations and is also subject to corporate income taxation.
Let’s consider all pros of C Corp and try to understand the nuances of this type of entity.
A C Corporation Has Limited Liability
Since a C Corporation is a separate legal entity, the business’s liabilities are separate from the responsibilities of investors, shareholders, and directors. As a rule, the owners of a C Corporation are protected from being liable for the business’s obligations.
C Corporation Is Separate from Its Owners
A C Corporation has a “Perpetual Existence,” which means it will continue to exist when the owner or shareholder passes away.
Ownership of C Corporation is Fluid and Transferred
Only the ownership of C Corporation can choose who holds the stocks which it issues. The stocks can be easily bought and sold among the investors.
Easy Access to Your Findings through Issuing Stock
C Corporations can hold Initial Public Offering, where they “go public” and offer shares for sale on a stock exchange, which can bring a substantial sum of money to your business.
Enhanced Business or Corporate Credibility
Incorporating as a C Corp shows others that you expect to see significant growth in your business credibility.
C Corporation’s Tax System
A C Corporation is taxed as a separate business entity. A C Corporation must file a designated tax form with the IRS, called IRS Form 1120. Moreover, a C Corporation has its own tax rates.
Corporations can retain both profits and earnings as part of their capital, which can protect some of the profits from taxation.
Stock Dividends from C Corporation
A C Corporation can choose whether to distribute some of the profits of the company as a dividend or not. The percentage of dividends that each of the shareholders is entitled to depends on how many shares they own. Distributed dividends are double-taxed, both on a corporate level and at an individual level.
Legal Requirements for C Corporation
- Hold an Annual General Meeting for the shareholders and directors to go over important information, and strategic decisions.
- Issue shares to investors as ownership of the business.
- Appoint a board of directors.
- Assign certain positions in the Corporation.
For a C Corporation, you should have all of the following positions. However, one person can hold multiple of these positions:
- Shareholders – People responsible for electing directors and approving main actions.
- Directors – They are managing the corporation and are responsible for issuing stock.
- Officers – The Corporation should have a president, secretary, and treasurer.
- Employees – They are working for the corporation and are paid by the corporation.
Forming a C Corporation
If you have studied this blog and feel like a C Corporation is the right entity for your eCommerce business startup, Prestige Auditors can help you form it. The process of forming a C Corporation sometimes can be very tricky, so let our team do the hard part of the work for you. Our experts are on hand to help you right now, with entity formation and other eCommerce business solutions you may be interested in.