What is a C Corporation?
Congratulations! you have decided to open your own business but not sure what entity will serve you best. In this article you can learn about C Corporation one of the few options available when forming an entity.
A C Corporation is a legal business entity that allows an individual, or two or more people to own and operate a business. The “C” in C Corporation stands for the subchapter of the IRS code that mandates federal taxation of this type of business entity. By forming a C Corporation, business owners protect their personal assets from business liabilities. Personal assets include all of a person’s possessions, such as their home, other real estate, bank and retirement accounts, vehicles, family heirlooms, jewelry, etc. If a business undergoes hardship, or a legal dispute arises and the business is sued, creditors can only pursue the assets of the C Corporation to settle the debts and liabilities. Because the owners’ personal assets are legally separated from the business, the assets are completely unaffected, and remain safe and secure. This shield of protection from personal liability is known as the “corporate veil.” When choosing to form a C Corporation, taxation is a major consideration. A C Corporation pays corporate income taxes on its profits, and pays dividends to its shareholders. Shareholders, in turn, pay personal income taxes on the dividends. This second dividend tax payment is made on income that was already taxed at the corporate level, and therefore, a C Corporation experiences what is often referred to as “double taxation.”
Other things to know about a C Corporation include:
A board of directors, which is appointed by the shareholders, oversees all business operations and must hold annual meetings.
Corporate Bylaws are be adopted and maintained by the board of directors.
A C Corporation is the only business entity that has the ability to “go public” and raise capital by selling shares of company stock (an unlimited number of shares are available).
Shareholders are owners of a C Corporation.
A C Corporation can issue many different classes of stock.
A registered agent is designated in the state in which the C Corporation is established, and also in any other state where it performs business transactions.
Most large public companies are C Corporations.