C Corporation

What is C Corporation (C Corp)?

As per tax laws governing the United States, any corporation which is not S corporation shall be considered C corporation which will have separate legal status and shall be taxed accordingly having its own articles according to which its activities shall be defined and shall be owned by the shareholders whereas its liability shall be limited.

Brief Explanation

A C Corporation is a type of business entity that is formed and regulated by the state. The policies, articles, and regulations for forming a C Corporation differ from state to state. In this type of business entity that is most prevalent, the owners or shareholders are taxed separately from the business entity. The taxing happens both at corporate and personal levels thereby leading to a double taxation situationDouble Taxation SituationDouble Taxation is a situation wherein a tax is levied twice on the same source of income. It usually occurs when the same income is taxed both at corporate as well as at the individual level.read more.

C Corporation

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Advantages

The advantages of C Corporation are varied and as follows:

Disadvantages

The disadvantages of C Corporation are as follows:

  • Since revenue is taxed both at a corporate level and individual level there comes to play the problem of double taxation.
  • This is expensive in the beginning since it has to pay a lot amount of fees that is accompanied by the filing of Articles of Incorporation. Moreover, this Corporation has to pay fees to the state in which they want to operate.
  • Since the Corporation is overlooked by the State and the Government it has to follow more regulations and formalities like complex tax rules. It has more government oversight than other companies since it gets protection against debts, lawsuits, and other financial obligations.
  • In this Corporation, the shareholders cannot deduct losses on their personal tax returns.
  • This has a different tax structure compared to other business entities

How to Form a C Corporation?

For forming a C Corporation the following steps are to be followed:

  1. A legal name is first chosen and reserved as per each state regulation.
  2. Then the Articles of Incorporation is needed to be drafted and filed for registering with Secretary of State.
  3. Adequate investment of capital in the business entity is done.
  4. Stock certificatesStock CertificatesStock Certificate, also called a Share Certificate, is a legal document evidencing the ownership of stocks in a Company, including details like the stockholder’s name, issuing date, the total number of stocks issued, identification number, and the corporate seal & sign. read more are then issued to the initial stockholders.
  5. Business licenses and other certificates required to start operation are then applied for.
  6. SS-4 Form is filed or online application at the Internal Revenue Service website is given to generate Employer Identification Number (EIN).
  7. Keeping in mind the different requirements by different jurisdictions any other ID numbers required by the particular state where it operates are to be applied.

S Corporation vs C Corporation Differences

Here we provide you with the top 3 differences between S corporation vs C corporation –

DifferencesS CorporationC Corporation
Taxation S Corporations are pass-through tax business entities. They file an informational federal return but are not taxed at the corporate level. Here the profits or losses are passed through the business and are recorded on the owner’s personal tax file. The due tax is paid by the owner and not by the business entity. C Corporations are considered to be separate entities and hence they are taxable. They file a corporate tax returns and pay taxes both ate corporate and personal levels when corporate income is distributed among the owners as dividends. At corporate level tax is paid first and then tax is again paid on individual level on the dividends.
Corporate OwnershipS Corporations have restrictions on ownership. No more than 100 shareholders are allowed and the shareholders must be US citizens. S Corporation cannot be owned by C Corporation.C Corporations have no restrictions on ownership. So they are more flexible which allows the growth of the business, expansion of ownership or selling of the corporation.
Class of stockS Corporations have only one class of stock.C Corporations have multiple classes of stock.

There are no restrictions on the number of shareholders in this Corporation. But on reaching certain thresholds it is required to register itself with SEC. This Corporation has the capability to obtain a large amount of capital by offering shares that help in the funding of new projects and business expansion.

This has been a guide to what is C Corporation? Here we discuss how to form C Corp along with its advantages and disadvantages. We also discuss the differences between a C Corporation vs S Corporation. You may learn more about Corporate Finance from the following articles –

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