C Corp: Advantages, Taxes, How to Form
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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
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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.
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Meet some of our C Corp Lawyers
Rhea d.
Rhea de Aenlle is a business-savvy attorney with extensive experience in Privacy & Data Security (CIPP/US, CIPP/E), GDPR, CCPA, HIPAA, FERPA, Intellectual Property, and Commercial Contracts. She has over 25 years of legal experience as an in-house counsel, AM Law 100 firm associate, and a solo practice attorney. Rhea works with start-up and midsize technology companies.
"Rhea is very knowledgeable, responsive, and a pleasure to work with. She provided excellent guidance throughout the MSA and BAA process, and I highly recommend her services."
Michael K.
A business-oriented, proactive, and problem-solving corporate lawyer with in-house counsel experience, ensuring the legality of commercial transactions and contracts. Michael is adept in reviewing, drafting, negotiating, and generally overseeing policies, procedures, handbooks, corporate documents, and more importantly, contracts. He has a proven track record of helping lead domestic and international companies by ensuring they are functioning in complete compliance with local and international rules and regulations.
"I’m so glad I chose Michael. He was so helpful. I made the best choice in picking him."
Alexander M.
Broad area practice including Business (domestic & international), IP, Employment, Family Law, Administrative, etc. My focus is a direct, no-BS approach with fast turn around times on completed work.
"I highly recommend him! He prepared an entire prenuptial agreement for us in just a few hours, and we even had direct communication later in the evening to make sure everything was completed properly. He was extremely responsive, professional, and efficient throughout the entire process. Without a doubt, I would recommend him to anyone looking for a reliable and dedicated attorney."
Amy B.
Amy Bales focuses on the areas of corporate law, real estate, intellectual property (including trademarks, service marks and copyrights) and entertainment law. She is admitted to the Florida Bar.
"I am quite happy by the work Amy provided. She is great and I highly recommend her."
Max M.
Business attorney with a focus on the health care sector, bringing Biglaw experience in multi-million dollar mergers and acquisitions, financings, and general corporate counsel work to the small firm space. I now help startups and growing companies access the same level of sophistication and strategic guidance typically reserved for large institutions.
"Overall, Max M. did a great job compiling the demand letter. He was very thorough in requesting documentation, responding to questions promptly, and producing the letter. He provided reasonable explanations for the tone that he used along with recommendations for when to send it and what to demand. Additionally, he was very responsive and updated the draft promptly after feedback was provided. There were some minor grammatical errors present, but as Max M. provided me with a word document, I was able to easily rectify those."
Joseph B.
I am an attorney licensed in Indiana. I currently work primarily on civil litigation, landlord/tenant matters, and adoption cases. I have over 10 years of labor relations experience, including negotiations, labor contract enforcement, and arbitration experience. I also work with several non-profit groups representing LGBTQ+ groups and indigent clients in housing matters.
"Joseph gave me a great deal on a detailed lease with everything I needed included. Would definitely recommend!"
July 30, 2023
Diamond R.
July 29, 2023 My name is Diamond Simpson Roberts, ESQ, MSPH and I am convinced that I can be a value added asset to most any company. As the first in my family to graduate a four-year university, I graduated from Wayne State University Law School in 2000 but could not afford a bar prep course upon completion. After over 20 years, I sat for the July 2022 UBE, successfully passed and am currently licensed in three states! This is an example of my self-motivation, internal drive and passion. I offer over 28 years of diverse experience in healthcare, strategy, sales/marketing, legal/policy and business savvy. I have many years building, leveraging, and sustaining long term relations to drive revenue as an entrepreneur and for corporations. My analytical strengths provide me with an innate ability to think through tough situations/topics while viewing both vantage points (which is excellent for law and life). I have been appointed to serve on numerous committees due to my heightened ability to identify client issues and priorities and provide solutions based upon relevant products, services and needs. I have led teams with and without authority; specifically, I have managed teams for an Adult Foster Care Facility called Etonne Cares, during my post-graduate fellowship with the largest Catholic Healthcare System in the U.S. and during my two-year executive order appointment with the Federal Government (Presidential Management Fellowship). Most importantly, I am a collaborative team player who knows how to improvise, overcome and adapt! I offer numerous years of being a pharmaceutical trainer and being an adjunct using the online platform. I welcome the opportunity to continue in the interview so that I may further highlight the skills I can (and will) contribute to my success in the role. Respectfully, Diamond Simpson Roberts, ESQ, MSPH DQSSIMPSON@GMAIL.COM M: 313-942-6747
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Browse Lawyers NowLawyer Reviews for C Corp Projects
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"She is very easy to work with. Always on top of the action items and get back to the client's needs immediately. Will continue to work with her."
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"Very competent attorney who gets to the point quickly and cheerfully."
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"Allen was great! He was very thorough and took his time to explain in easy-to-understand terms of what we were looking for. Once the direction was decided, he quickly provided all documentation as well as a written opinion on several options for my business. I think he went above and beyond because he advised and gave his opinion on several other things that weren't really apart of the main project but was in support of our business so that was great. I will work with him again on all future contract related items for our business."
Reply From Allen L.
Thank you so much -- glad the corporation name change came together clearly, and that walking through the options and the written opinion was helpful for deciding the right direction. Looking forward to the next contract matter. -Allen
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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.
Dissolution
C Corp
Massachusetts
What are the legal steps and requirements for dissolving a C-Corp?
I am the CEO of a technology startup that has been operating as a C-Corporation for the past five years. Due to financial challenges and a significant decrease in revenue, our board of directors and shareholders have unanimously decided to dissolve the company. However, as a non-legal professional, I am not familiar with the legal process and requirements for dissolving a C-Corp, including notifying the IRS, settling outstanding debts and obligations, filing dissolution documents, and distributing assets to shareholders. I would greatly appreciate your guidance on the legal steps involved and any potential pitfalls or issues we should be aware of during the dissolution process.
Richard G.
Dissolving a corporation in Massachusetts involves a series of steps to ensure that the process is legally compliant and that the corporation’s affairs are properly settled. Here’s a general outline of some of the process, but you should consult with a corporate attorney/business attorney such as myself: 1. Board Approval - **Board of Directors’ Resolution:** The board of directors must approve a resolution to dissolve the corporation. This resolution should outline the reasons for dissolution and the plan for winding up the corporation's affairs. 2. Shareholder Approval - **Shareholder Meeting:** Hold a meeting of the shareholders to vote on the dissolution. In most cases, a majority of the shareholders must approve the dissolution, although the corporation’s bylaws or articles of incorporation might require a higher percentage. 3. File Articles of Dissolution - **Prepare and File:** File the Articles of Dissolution (Form DSF 28) with the Massachusetts Secretary of the Commonwealth’s office. You can download the form from the Secretary of State's website or file it online. - **Fee:** There is a filing fee associated with this form. 4. Settle Debts and Obligations - **Pay Debts:** Ensure that all the corporation’s debts and obligations are paid. This includes taxes, loans, and other liabilities. - **Distribute Assets:** After settling debts, distribute any remaining assets to shareholders according to their ownership interests. 5. File Final Tax Returns - **Federal and State Tax Returns:** File final federal and state tax returns for the corporation. Indicate that these are the final returns and that the corporation is dissolving. - **Clearances:** Obtain any necessary clearances from state tax authorities, if applicable. 6. Cancel Permits and Licenses - **Cancel Business Licenses:** Cancel any business licenses, permits, or registrations that the corporation holds. ### - **Notice to Creditors:** Notify creditors of the dissolution. This can help to ensure that all claims are resolved before finalizing the dissolution. 8. **Close Bank Accounts** - **Close Accounts:** Close the corporation’s bank accounts and settle any remaining transactions. 9. **Document Retention** - **Keep Records:** Retain the corporation’s records for a period of time as required by law, typically several years. Additional Notes: Legal and Financial Advice: It’s often advisable to consult with a legal or financial advisor to ensure that all aspects of the dissolution are handled properly. Publication: Massachusetts doesn’t generally require publication of dissolution, but local regulations or specific business needs might necessitate it. Completing these steps ensures that the dissolution process is handled smoothly and in compliance with Massachusetts law. Contact me if you have further questions specific to your company as this article is not a complete article.
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.
Corporate
C Corp
New York
C corp and board composition?
I am a small business owner that is in the process of setting up a C Corporation. I am currently in the process of forming the board of directors and I want to make sure that I am following all of the necessary legal regulations. I want to ensure that I am properly setting up the board of directors and that the board is comprised of the correct individuals.
Michael S.
The specific requirements for the composition of a board are a matter of State law, so the answer would depend on where your corporation is incorporated and, in some circumstances, where it is physically located. The number of directors and the specific choice of whom to add to the Board is generally best determined on a case by case basis.
Business
C Corp
North Carolina
Can a C corp be digital?
I am an entrepreneur looking to start a new business. I am considering setting up a C corp and wanted to know if it is possible to do this digitally. I understand that C corps typically require a physical presence, such as an office, but I am interested in knowing if there are any innovative digital solutions that could make this process easier.
Nicholas M.
There are many virtual offices and virtual mailboxes that you can use to register a corporation. Delaware does not even require those and a registered agent with an address is all that is required.
Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.
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