What is a C Corporation?
A C Corporation is a business owned by shareholders who buy and sell stock in the company. It is counted as an individual entity for taxation and legal purposes. This separation protects the shareholders and directors from liability in the case of financial or legal troubles with the business. All corporations are considered C Corporations unless they have specifically applied to be an S Corporation.
A C Corporation has many advantages associated with it. Since it is a separate legal entity, it can buy and trade as an individual and can generally find financial backing easier than other types of businesses. Unlike sole proprietorship or partnerships, the owners have limited financial liability for the company. The most owners can lose is what they paid for their shares, as their personal possessions cannot be claimed in the case of legal action against the C Corporation.
The split ownership allows a C Corporation to outlive all of its owners. Unlike other small businesses, ownership is easily transferred to new shareholders. A shareholder can simply sell their shares of stock and their claim is done.
There are a few disadvantages to a C Corporation. Dividends are doubly taxed, meaning that the corporation taxes them as income before they are distributed and they are taxed again as income for the shareholders. Companies with fewer than 100 shareholders can avoid this double taxation by applying for S Corporation status.
There are many regulations that govern C Corporations. The formation and dissolution of one is a lengthy and expensive process that is generally handled by lawyers. Government regulations must be adhered to strictly including public disclosure. Reports on finances and operations must be filed and published so shareholders can see the direction the company is headed and regular corporate meetings must be held with minutes taken. A corporation also has to get approval from the Securities and Exchanges Commission (SEC) to sell shares nationwide or from the state where they reside when only selling within that state.
C Corporations are primarily suited to large scale businesses. For smaller companies, S Corporations are an alternative that offers limited multiple ownership with tax breaks for the business. Limited Liability Companies (LLC) are a combination of partnership-type tax and management benefits and C Corporation protection for individual owners. Both Partnership and sole proprietorship are also viable options for small businesses. When considering a business structure for any company, it is best to consult with a lawyer or similar professional to determine which of these are best suited for the individual company.
Discuss this Article
Post your comments