What Is a C Corp?

define c corporation

Before getting down to the hard work of building a brand, you’ll need to first decide which business entity makes the most sense for you. To incorporate, you have to file a document, generally referred to as Articles of Incorporation (sometimes called a Certificate of Incorporation) with your state and pay filing fees. The CT Corporation staff is comprised of experts, offering global, regional, and local expertise on registered agent, incorporation, and legal entity compliance. C corp owners might be able to achieve a lower tax bill with a combination of salary-and-distributions and a reduced (or no) taxable gain on the sale of certain qualifying stock. For a qualifying business, the favorable Internal Revenue Code Section 1202 gain reduction (or in some cases, exclusion) available to C corporations could be highly beneficial come tax time.

Be aware that C-corps are a complicated way to organize a business. Before starting or leaving a corporation, be sure to consult with a financial professional to fully understand the processes and duties involved. There are a few steps that a company needs to take in order to set up a C corp. Insights on business strategy and culture, right to your inbox.Part of the business.com network. The third way, which is the most convenient, is through a statutory conversion. These are all statutory transactions and you will have to comply with what the corporation statute says.

Do I have to file a document with the IRS to be taxed as a C corporation?

A limited liability company balances the relative ease and flexibility of a partnership structure with the increased risk protection and tax advantages of a corporate structure. LLC owners (known as “members”) aren’t personally liable for business obligations. By default, members pay taxes https://www.bookstime.com/bookkeeping-services/los-angeles in the same way as would owners of a sole proprietorship or general partnership. But an LLC can also elect to be taxed as a C-corporation or an S-corporation if it meets certain requirements. Many small business owners choose LLCs for the simplicity and flexibility this structure offers.

define c corporation

The board is responsible for choosing executives, such as the chief executive officer (CEO), who run the company day to day. Also, you can bring in an unlimited number of investors when your business is structured as a C corporation. They can be individuals or entities, such as a bank or an investment group, and they can have different ways of being a shareholder of your company through the various classes of stock you’re allowed to issue. They’ll receive dividends as a percentage of the corporation’s profits—what’s left after operating and business expenses are deducted from its gross earnings—based on how many shares they hold. Filing the articles of incorporation for a C corp can be more expensive than other business structures, and incur greater legal fees.

Forms & Instructions

Some states also require a company file S corporation election after approval of incorporation status is authorized. Obtain an Employer Identification Number (EIN) by filing an IRS Form SS-14. C corporations must also apply for a franchise tax ID define c corporation number in a state where franchise tax payment by corporations is mandatory. Contact the state tax commission or franchise tax board in the state of business registration to find out about the specifications of state tax reporting by a corporation.

  • Like we mentioned above, C Corps are taxed as a completely separate entity.
  • An S corporation is one that has made an election with the IRS to be taxed differently than a C corporation.
  • A C corporation should use IRS Form 1120 to report its corporate income taxes.
  • However, an LLC is more suited to a small business or sole proprietorship.
  • These officers will be responsible for enforcing policies created by the company’s board of directors.

For example, if you’re starting a C Corp in Arkansas, you’ll pay a $50 filing fee, but if you’re starting a C Corp in Nevada, the filing fee is much higher at $725. If you are a C corporation, use the information in the chart below to help you determine some of the forms you may be required to file. Work with professionals, like attorneys and accountants, when setting up a C corporation to ensure everything is done properly and documented in accordance with local and federal requirements. Yes, you can convert a C corporation to an LLC should your business needs change.

Understanding C Corporations Better

First and foremost, you need to choose a name for your corporation. The name of your C corporation should be both legal and distinct. Once you have found a suitable name, you should reserve it with your Secretary of State if name reservation is available for C corporations in your state.

Another benefit to this designation is a large number of shareholders it has. This enables the corporation to obtain large amounts of capital which may not be possible with an S corp. When it comes to business, the most common designation is the C corporation. You’ll also need to have a set of bylaws, which are the rules by which your company will run. Here are some advantages and disadvantages of establishing a C corp. Jane Haskins practiced law for 20 years, representing small businesses in startup, dissolution, business transactions and litigation.

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