The term “corporation” is one that is frequently used to refer to business entities, but it actually has a specific definition: a separate legal entity that is controlled by its shareholders. A corporation will continue to exist even if the stockholders do, which may not be the case with a sole proprietorship or partnership, two other legally recognized company structures.
A C Corporation and an S Corporation both have limited liability, meaning that shareholders are only responsible for their investment’s value and are not held responsible for the company’s debts. Investors in a C Corporation will lose their money if it files for bankruptcy, but they won’t be held personally responsible for the company’s debts.
All C Corporations, regardless of size, now pay a flat tax rate of 21% as a result of the Tax Cuts and Jobs Act of 2017 (TCJA). In the past, the tax rate changed according to taxable income.
Since a C Company is the de facto form of corporation, nothing additional needs to be done to establish one in your state aside from the customary steps of writing articles of incorporation.
Depending on your business type and who owns it, you should consult an accountant and a lawyer before deciding whether to operate as a C corporation. A sole proprietorship, partnership, or limited liability corporation (LLC) might be more appropriate, and an S Corporation is frequently advised if a business is family-owned.
The most common problem with a C Corporation is double taxation, which occurs when investors receive dividends after the corporation pays taxes. This can be avoided by using an S Corporation, which passes tax concerns for profit and loss to the shareholders. However, an S Corporation has its own restrictions, including a cap of 100 shareholders and the ability to issue just one type of stock.
The fact that a C Corporation is simply more complicated than a sole proprietorship, partnership, or LLC is another reason that smaller businesses sometimes provide for not forming one. A C Corporation has more paperwork obligations and will take more staff time to attend to its needs, which can be detrimental to newer enterprises when personnel will be focused almost entirely on growth. A C Corporation can also cost more to establish than other types of legal entities used for business, but it is absolutely necessary if you want to acquire more money through venture capital investment, for instance, or launch an initial public offering (IPO).
Filing as a C-corporation, the following forms may be required:
- Income tax:
- Estimated tax:
- Employment taxes:
Source: Internal Revenue Service
The personal liability of the directors, shareholders, workers, and officers is restricted by C companies. In this way, no one connected to the firm may be held personally liable for the business’s debt obligations. As owners and management team members are changed, the C corporation remains in existence.
A C corporation may have a large number of shareholders and owners. Upon exceeding particular thresholds, it is necessary to register with the Securities and Exchange Commission (SEC). The corporate entity can raise significant sums of money that could be used to finance new initiatives and potential expansions by issuing shares of stock.
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