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What is an C Corp?
When you decide to incorporate your business, one option for formation is a C Corp. A C Corp is a common type of corporation in the United States because it allows a business owner unlimited shareholders and attractive tax benefits.
A C Corp is like an S Corp or an LLC in that it offers liability protection for its owners. A C Corp is considered a separate entity from the owners, so an owner’s personal assets are protected in the event of a lawsuit against the company.
The biggest difference between a C Corp and an S Corp or LLC is the tax structure. C Corps are subject to federal corporate taxes which leads to a situation of “double taxing”. This may make a C Corp sound unappealing, however, C Corps also benefit from other tax advantages that are not available to S Corps or LLCs, such as the ability to carry profits and losses forward and backwards, which can help offset income in other years.
A C Corp must follow certain requirements although they are far less regulated than an S Corp. Some of these requirements include:
- Election of a board of directors
- At least one meeting per year for the directors and shareholders
- Records of minutes kept at these meetings
- Maintain voting records
- Maintain a list of all owner’s names and ownership percentages
- Have corporate bylaws
- File annual reports, financial disclosure reports, and financial statements
A C Corp, although more complicated and expensive to maintain than an LLC or S Corp, is a great option for businesses that are medium or high risk, businesses that plan on raising funds through stock sales, or a business that wants to eventually go public.
For more information about C Corps, click here.
C Corp Advantages and Disadvantages
C Corps have both advantages and disadvantages for business owners. When you are deciding how to incorporate your business, you may want to meet with a corporate lawyer to help decide which structure suits your needs. It is important to consider all the advantages and disadvantages before making your decision.
Advantages of a C Corp
- Liability Protection: Corporations offer the strongest protection against personal liability for owners. Directors, officers, shareholders, and employees are all protected under a C Corp.
- Unlimited Growth Potential: Unlike an S Corp, there are no limitations on the number of shareholders a C Corp can have. There is also no limit on the sale of stock.
- Perpetual Existence: The owner or shareholders can leave the company without effecting the company
Disadvantages of a C Corp
- Double Tax: A C Corp, unlike an S Corp, is taxed as a corporation. This means it is subject to federal taxes as a corporation and then shareholders must pay taxes again on dividends
- Expensive Fees: There are numerous expensive fees that go along with the formation of a C Corp. This can be burdensome for a new business.
- No Deduction of Corporate Losses: Shareholders in a C Corp cannot deduct losses from their personal tax returns like shareholders of an S Corp.
For more help with choosing a business structure, read this article.
How is a C Corp Taxed?
A C Corp is taxed as a corporation and is completely separate from its owners in the eyes of the IRS. A C Corp first pays taxes at the corporate level and then each shareholder will be required to pay taxes on the dividends they received from the corporation at a personal level.
This form of double taxation is often looked at in an unfavorable light, however owners of a C Corp can take advantage of many tax benefits to offset this double tax and lower their tax burden.
Some advantages to a C Corp Tax Structure include:
- Potential to Minimize Overall Tax Burden: Business owners can opt to only take a salary rather than taking a dividend because salaries are not taxed at a corporate rate
- Ability to Carry Profits and Losses Forward and Backward: C Corps have flexibility in determining their fiscal year. This allows shareholders to shift income between different years and decide when to pay taxes on bonuses or when to take a loss.
- Option to Accumulate Funds at a Lower Tax Cost: C Corps allow shareholders to retain income within the company because profits from a C Corp do not appear on a shareholder’s personal tax return.
- Salary and Bonus Write Offs: Unlike an S Corp, the shareholders of C Corps can act as employees in the corporation and take a salary. This allows the corporation to deduct these salaries as payroll taxes. Essentially, the C Corp can pay their employees to offset any taxable profits. This allows shareholders to avoid the double tax.
- Fringe Benefits: Fringe benefits allow a C Corp to take advantage of many large tax write-offs. The only stipulation is that the company must offer the same benefit to all employees. Some benefits eligible for write-offs include medical reimbursement plans, long term care, and disability insurance.
- Charitable Contributions: C Corps can deduct any charitable contributions from their taxes as long as the contribution is no more than 10% of their taxable income.
- Carry Losses Over Multiple Years: C Corps can take more operating losses than an LLC or S Corp with less scrutiny from the IRS. This is beneficial for new, growing companies.
- Less Ownership Restrictions: While an S Corp is subject to many strict regulations set forth by the IRS, C Corp owners benefit from more flexibility and less restrictions. A C Corp can have unlimited owners, including foreign owners, and can have more than one class of stock.
- Financing: Because C Corps are more flexible and less restrictive than an S Corp, they are more appealing for venture capitalists to invest in.
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C Corp vs. S Corp
A C Corp and an S Corp are both types of corporations and are very similar in how they are formed and run. Both corporations require a board of directors, corporate bylaws, annual meetings, and record of minutes. Both types of corporations protect their owners from personal liability and allow the sale of stock.
The two biggest differences between a C Corp and an S Corp are the tax structure and the restrictions that each corporation is subject to.
S Corps are pass-through entities so profits and losses flow through the company and are reported on the individual tax returns of the owners. In a C Corp, the business and the owners are treated as separate entities. A C Corp is subject to both corporate taxes and then owners are again taxed on dividends they received.
C Corps benefit from less restrictions than an S Corp including more flexibility with ownership regulations and stock options. Less restrictions allow a C Corp more growth potential than an S Corp. For example, an S Corp is limited to 100 shareholders that must be US citizens or permanent residents while a C Corp has no limit on shareholders, and they can be from anywhere.
Read this article to learn more about the characteristics of a C Corp.
Forming a C Corp
After you have decided to incorporate your business and you have chosen a C Corp as your business structure, you can follow these steps to form your C Corp:
- Choose and Register a Name : You must choose a name that is not currently being used and register your name with the Secretary of State.
- File Articles of Incorporation: Articles of incorporation must be filed with the Secretary of State and each state has different rules and filing procedures for this document.
- Issue Stock: Upon the creation of the business, stock certificates must be issued to the initial shareholders making them official owners of the corporation.
- Licenses and Certificates: Depending on your business and which state you are located; you may need special licenses and certificates to run your corporation. Check with your local state laws to see if this applies to your company.
- Employer Identification Number: You will need an employer identification number or EIN to open a business bank account or hire employees. You can get your EIN through the IRS website.
- Elect a Board of Directors: Every corporation, S Corps included, must elect a board of directors who oversee the management of the company.
If you would like more information about forming a C Corp, click here.
Get Help Creating a C Corp
Do you have questions about forming an C Corp and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from corporate lawyers who specialize in C Corp formation.
Meet some of our C Corp Lawyers
Anand A.
Anand is an entrepreneur and attorney with a wide-ranging background. In his legal capacity, Anand has represented parties in (i) commercial finance, (ii) corporate, and (iii) real estate matters throughout the country, including New Jersey, Pennsylvania, Delaware, Arizona, and Georgia. He is well-versed in business formation and management, reviewing and negotiating contracts, advising clients on financing strategy, and various other arenas in which individuals and businesses commonly find themselves. As an entrepreneur, Anand is involved in the hospitality industry and commercial real estate. His approach to the legal practice is to treat clients fairly and provide the highest quality representation possible. Anand received his law degree from Rutgers University School of Law in 2013 and his Bachelor of Business Administration from Pace University, Lubin School of Business in 2007.
Max M.
Results oriented business attorney focusing on the health care sector. Formerly worked in Biglaw doing large multi-million dollar mergers and acquisitions, financing, and outside corporate counsel. I brought my skillset to the small firm market, provide the highest level of professionalism and sophistication to smaller and startup companies.
Rene H.
I am an attorney licensed in both California and Mexico. I offer a unique blend of 14 years of legal expertise that bridges the gap between diverse legal landscapes. My background is enriched by significant roles as in-house counsel for global powerhouses such as Anheuser-Busch, Campari Group, and Grupo Lala, alongside contributions to Tier 1 law firms. I specialize in navigating the complexities of two pivotal areas: AI/Tech Innovation: With a profound grasp of both cutting-edge transformer models and foundational machine learning technologies, I am your go-to advisor for integrating these advancements into your business. Whether it's B2B or B2C applications, I ensure that your company harnesses the power of AI in a manner that's not only enterprise-friendly but also fully compliant with regulatory standards. Cross-Border Excellence: My expertise extends beyond borders, with over a decade of experience facilitating cross-border operations for companies in more than 20 countries. I am particularly adept at enhancing US-Mexico operations, ensuring seamless and efficient business transactions across these territories.
Seth S.
I am an attorney admitted in NY, with over 6 years of experience drafting, reviewing and negotiating a wide array of contracts and agreements. I have experience in Sports and Entertainment, Real Estate, Healthcare, Estate Planning and with Startup Companies. I am confident I can assist you with all of your legal needs.
Rishma E.
Rishma D. Eckert, Esq. is a business law attorney who primarily represents domestic and international companies and entrepreneurs. A native of both Belize and Guyana, she remains engaged with the Caribbean community in South Florida: as a Board Member and General Counsel for the Belize American Chamber of Commerce of Florida, and Member of the Guyanese American Chamber of Commerce. She holds a Bachelor of Laws degree (LL.B.) from the University of Guyana in South America, a Master’s degree in International and Comparative Law (LL.M.) from Stetson University College of Law in Gulfport, Florida, and earned a Juris Doctor degree (J.D.) from St. Thomas University School of Law in Miami, Florida. Licensed to practice in the State of Florida and the Federal Court in the Southern District of Florida, Mrs. Eckert focuses her passion and practice on domestic and international corporate structuring and incorporation, corporate governance, contract negotiation and drafting, and trademark and copyright registrations.
Kiel G.
Founder and Managing partner of Emerald Law, PLLC, a business law firm specializing in contract drafting and corporate transactions. Kiel worked as in house counsel for a variety of companies before launching his own firm, and most recently served as the Chief Legal Officer for an international private equity firm.
October 2, 2020
Mark A.
Mark A. Addington focuses his practice primarily on employment litigation, including contractual disputes, restrictive covenants (such as non-competition, non-solicitation, or confidential information restrictions), defense of wage and hour, harassment, retaliatory discharge, disability, age, religion, race, and sex discrimination.
Find the best lawyer for your project
Browse Lawyers NowStartup
C Corp
Ohio
C corp and equity dilution?
I am an entrepreneur who is in the process of forming a C Corp. I am looking to raise capital to fund my business and I am considering issuing equity to potential investors. I am concerned that issuing equity to investors could lead to dilution of my ownership, so I am looking for legal advice on the best way to structure my equity offerings to minimize dilution.
Paul S.
If you want to avoid dilution, then you need to fund the business with your own resources, and pay all your workers with money rather than equity. Otherwise, when building a business, dilution is simply a reality you have to live with. You can start out with a large amount of ownership, for example, 80% of the authorized shares, but over time dilution is inevitable. Which would you rather have, 90% of a company worth $200,000, or 55% of a company worth $1 million?
Litigation
C Corp
Ohio
C corp and indemnification?
I am the CEO of a small C Corp. Recently, my company has been sued by a customer for a breach of contract. I am concerned about the potential financial and legal implications of this lawsuit and want to understand the rules and regulations around C Corp and indemnification. In particular, I am interested in understanding how C Corp indemnification works and what I can do to protect myself and my company from liability.
Paul S.
Depending on the state where the company is incorporated, indemnification of directors and officers may be mandatory. In any case, indemnification only comes into play if this customer has named you personally as a defendant in the lawsuit. If the customer has done so, and you were acting in good faith within your role as a director or officer, the company should pay all your expenses in defending yourself, and any judgment against you if you lose. Of course, you should be hiring an attorney to defend the company (and you, if you are named) in this lawsuit. It's not a good DIY project.
Acquisitions
C Corp
New York
C corp and exit strategies?
I am the founder of a small C Corp that has been in business for 5 years. We have achieved success and grown significantly since our founding, but I am now considering different exit strategies. I am seeking legal advice about which exit strategies would be best for my C Corp and how to properly implement them.
Michael S.
There are a number of possible exit strategies, including a sale to a third party, a sale to an employee stock ownership plan, and a sale to an employee-owned cooperative corporation. Each of those approaches could be effected through a single transaction, or through multiple installments, or you could maintain some ownership of the business indefinitely. Each appraoch comes with certain relative advantages and disadvantages. Please contact me if you would like to discuss your options in greater detail.
Business
C Corp
North Carolina
C corp and change of control?
I am a business owner looking to form a C Corporation. I am in the process of creating the Articles of Incorporation and am interested in understanding the implications of a change of control on the C Corporation. I am looking to ensure that all necessary steps are taken to protect my business and its assets in the event of a change of control.
Nicholas M.
These are great questions, and are going to be very specific to your corporation and how you want to run things. Generally, you can structure things however you want, but working with an Attorney on your bylaws will ensure an objective outsider is thinking through how conflicts can be resolved before they impact day-to-day business operations.
Small Business
C Corp
North Carolina
C corp vs. S corp: Which is better?
I am currently starting a new business and am trying to decide which corporate structure is best for my particular situation. I have heard that C corps and S corps have different advantages and disadvantages, so I am looking to get legal advice as to which would be more beneficial for me. I understand that there are many factors to consider, such as taxation, liability, and potential for growth, so I am hoping to get a better understanding of the pros and cons of each structure and which would be the most suitable for my needs.
Nicholas M.
It would be impossible to give you a primer on all of the advantages and disadvantages, but here is a headnote version: C-Corp Pros: Ultimate flexibility with regards to ownership, control, power, etc through the issuance of one or more classes of shares. Cons: Double taxed. You will be taxes as a corporation and as an individual taking a salary from the corporation. S-Corp (this is just a C-Corp electing to be taxed under subchapter S of the IRS code): Pros: Tax advantage for owners (up to 100 people) from not double taxing. Cons: Less flexibility than C-Corp but more granular control than LLC. Depending on the situation, most companies starting out are better off starting an LLC, which has less formalities, and then converting to a S-Corp or C-Corp once they scale and can take advantage. C-Corp, S-Corp, and LLC all have the same level of liability protection if you follow the formalities for formation and maintenance. C-Corps have the most rigor and LLCs have the least. You can also consider LLP and other business structures based on co-owners or other factors that a lawyer can help you evaluate.
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