A C corporation (or C corp) is a corporation that, for Federal income tax purposes, is taxed under Chapter C of the IRS code. Most major companies are treated as C corporations for Federal income tax purposes. A C Corp is a completely separate tax and legal entity from its owners. C Corporations are one of the most common forms of corporations for large publicly traded companies. C Corporations are subject to corporate income taxes separate from the owners, where most other forms of business entity allow for the company profits to “pass-through” to the personal income tax statements of the owners.
* What are the Advantages of a C Corporation?
- Limited Liability for shareholders, owners, directors and officers. As with other entity-types, The C Corp limits the liability of the owners/investors to only the amount of their investment. The shareholders of a corporation are not held personally liable for business debts, claims, or other liabilities absent fraud or certain other exceptions.. The most common example of where an owner or employee of a corporation can be held personally liable for the Corp’s debts is where an owner or employee of the corporation guarantees or signs personally on the debt or obligation.
- Perpetual Existence: The existence of a corporation is considered perpetual. It can however be terminated voluntarily by its owners.
- Tax advantages: Although the double taxation may not sit well with most business owners, there are certain tax advantages such as the Income Splitting Tax rate on corporate income which is usually lower than the tax rate on personal income with certain qualifications.
* What are the Disadvantages of a C Corporation?
- Double taxation: Income/profit generated by a C Corporation is taxed. The remaining profits going to the owner (e.g. as a dividend) is then taxed personally again, hence the term Double Taxation.
- Formal corporate record keeping requirements; Corporations require more ongoing paperwork than most other business entities in order to stay compliant with the law and maintain their corporate status, including holding and documenting annual meetings of shareholders and directors and keeping minutes of important corporate meetings. Neglecting formalities could lead to liability exposure such as making it easier for Creditors to “pierce the corporate veil.”
* How is a C Corporation Taxed?
As stated above, unlike “pass through” entities such as the LLC or S-Corp, the C-Corp is a completely separate taxable entity. This is one of the disadvantages of chosing this corporate form and is therefore rarely used by small businesses.
* How is a Corporation Managed?
Corporations are managed by directors and officers. The directors are appointed by the shareholders and are responsible for the overall management of the corporation. The directors appoint the officers who are responsible for the day to management and operations of the corporation. Typical officer positions include president, vice-president, treasurer, and secretary. Other title are used as well. In most states only one director and one officer is required to form an entity, and they can usually be the same person.
The par value of a share is the minimum price a, and the par value must be the same for all shares of the same class. It doesn’t necessarily reflect their real value, and is often set at a low value. The shares can be sold to the initial shareholders, at par value or more, but the price must be the same for each share. Not all states require a par value. Unless otherwise specified, IncBrothers will authorize the minimum number of shares the state requires (assuming the state requires a par value), or without par value if not required by the state.