What is a C Corporation?

Business ownership is a journey that takes time, money, and dedication. Before getting down to the hard work of building a brand, you’ll need to first decide which business entity makes the most sense for you. 

Potential business owners have plenty of business types to choose from. Limited liability companies (LLCs), corporations, and sole proprietorships are just a few to consider. If a corporation sounds the most appealing, then let’s take a look at a C corporation. 

What is a C Corporation? 

Corporations, in general, carry a business independently of those running it. This makes them very appealing to those entering business ownership who are looking for growth. The type of corporation can affect important factors like taxes and your liability. There are C corporations (C corps) and S corporations (S corps), but, of course, we’ll only go over C corps. 

C corps are the most common type of corporation and are the default tax status for corporations. It taxes its owners (shareholders) separately from the business. We’ll go into more detail about this later.

A C corp offers many benefits and downsides. You’ll need to consider both to decide if this model is right for you. Let’s take a look at it.

C Corporation Ownership and Structure

C corps require officers to oversee the business’s operations. These officers will be responsible for enforcing policies created by the company’s board of directors. The board of directors also choose the officers and manage all operational records and finances.

Governing Body

All C corps must have the following governing positions: president or CEO, treasurer, and secretary. Your Articles of Incorporation (used to create the C corp) should have this information.

Each role’s responsibilities typically include:

President/CEO

• This person oversees the company’s operations, such as:
  • Meeting with the other officers to discuss company affairs.
  • Signing important legal documents for the company.
  • Handling employment matters. 

Vice President

This person’s role is flexible and assists the president/CEO and board of directors with corporate matters. This person also steps in when the president/CEO is unavailable. A C corp can have more than one vice president. 

Treasurer

This person is also called the chief financial officer (CFO). They manage the company’s financial matters. This includes preparing and creating financial documents, maintaining financial records, and handling tax responsibilities.

Secretary

This person keeps records of all company-related matters and actions. This can include board of directors and shareholder meeting minutes. If shareholders request certain records, it’s the secretary’s duty to complete these requests. 

The Advantages of a C Corporation

As with any legal entity in business, a C corp has plenty of advantages. 

Limited Liability

Like an LLC, a C corp offers limited liability. This applies to shareholders, officers, employees, and directors. The company’s legal obligations aren’t used as personal debts for individuals of the business.

Perpetual Existence 

Since corporations exist separately from shareholders, they have what’s called “perpetual existence.” This means that the company can continue operating even if the owners leave or die.

A C corp continues to exist until it’s liquidated or dissolved. Also, the company’s existence is not affected when a transfer of shares of stock takes place. 

Attractive to Investors

C corps tend to be more attractive to investors compared to other business models like LLCs and S corps. They can also have less trouble obtaining equity financing like venture capital.

This is a huge plus since many venture capitalists can’t invest in LLCs or S corps. This is due to restrictions in tax laws and their governing documents.

Unlimited Shareholders

S corps have a 100 shareholder limit, but C corps have an unlimited shareholder count. This may not apply if the company’s governing documents say otherwise. Keep in mind that once the C corp owns $10 million in assets and has 500 shareholders, it has to register with the SEC. 

Management by Board of Directors

A board of directors manages a C corp and appoints officers who will run the company’s operations. This means that shareholders can’t manage the business. They do receive certain economic benefits relative to the number of shares they own.

Shareholders instead elect and remove directors depending on certain circumstances, inspect company records, and vote on business affairs like mergers, dissolutions, and management structure changes. 

Disadvantages of a C Corporation 

Despite the advantages that C corps come with, you’ll have to also weigh the disadvantages. 

Expensive Formation

C corps can be expensive to form. They have different filing requirements that can be costly depending on the state. Other formation requirements might need a business attorney’s guidance, which can be pricey.

Complex Model

C corps are complex business models that need a lot of insight and legal help to get them up and running. Corporation laws generally need a higher number of formalities in how they’re run as well.

For example, a C corp needs regular meetings between directors and shareholders. These meetings must be recorded at all times for legal purposes. Annual reports must also be filed. These may be downsides if you prefer to run your business with a little more freedom.

Taxes

Unless a corporation elects to be taxed as an S corp, a C corp will have to pay corporate income tax since it is legally considered a separate entity. Since it is taxed at the corporate level, the C corp will pay this tax after it offsets its income with losses, credits, and deductions.

The company pays shareholders dividends after its income has been taxed. The shareholders will then have to pay personal income taxes on those dividends, causing a “double taxation” clause. A CPA or other tax specialist can help you with these matters. Additionally, shareholders can’t deduct any losses on their tax returns. 

Forming a C Corporation 

Forming a C corp can be easy with the right guide. We offer a detailed and comprehensive set of steps that can help make the C corp creation process easier. 

Filing Requirements 

Filing to create a C corp formally starts by drafting Articles of Incorporation with your state’s Secretary of State. This requires you to create a unique business name and name a registered agent. From there, you can follow the steps as listed in our C corp formation guide. 

Summary

We hope this article has painted a better picture of what C corps are, how they work, and if your business can benefit from following its model. Remember that C corps are very complex business models, and we urge you to see a professional for more detailed information about them. 

We Can Help!

We can help you set up your C corp and offer many other business formation services. A few include getting a registered agent, filing important paperwork, and securing an employee identification number (EIN). If a C corp sounds like a business model that would best serve your needs, then get started today!