What is a C Corporation?

When starting a business, a C corporation is the most common structure thanks to its protection, tax benefits, and ease of setup. Many get this confused with an S corporation, but there are definite differences that make them unique. Having a C corporation status designates how the business will be taxed while also defining the liability that owners have in relation to company debt.  

C Corporation Benefits

The biggest benefit of a C corporation is its limited liability protection. This means that the owners are not personally responsible for debt and liabilities related to the business. In this regard, a C corporation is much like a limited liability company (LLC).

Unlike an S corporation, with a C corporation the business is allowed to have an unlimited amount of owners. This is particularly important during the start-up phase of any business. Also, transferring ownership within a C corporation is simple enough through the transfer of stock. With an S corporation the number of shareholders is limited to 100. With a C corporation there is no limit.

Many entrepreneurs opt for self-employment instead of a full-fledged C corporation. The main drawback of this is that self employed workers end up paying out additional money in self employment tax. With a C corporation it is easy to save on self employment tax since owners are classified as employees.

C Corporation Tax Information

Upon forming a company, it is important to remember that C corporations are audited less frequently than other business types; in particular, sole proprietorships.

A C corporation is a separately taxable entity, unlike an S corporation which is a pass through entity. This means that the business must file a corporate tax return with the IRS and state. This leads to one of the main disadvantages of forming a C corporation: the possibility for double taxation. If income is distributed to owners in the form of dividends, and this is then considered personal income, double taxation occurs. The tax is initially paid at the corporate level, and then once again on the individual return in the form of dividends.

C Corporation Creation

To create a C corporation you must follow the steps as outlined by your state. In most cases you will want to start by choosing a unique business name. From there, directors must be appointed and formal paperwork filed with the state. Filing fees can range from $100 up to $1,000, depending on your location. Once the first meeting is held, stock certificates are issued to the owners. Along the way, a C corporation should stay organized much in the same way as any other business structure. This definitely holds true when it comes to accounting and tax related tasks.

A C corporation is a common type of business structure, and offers many benefits and advantages to its owners. The impact of a C corporation is closely related to how much a business is taxed.