Starting a business, company, or corporation is not easy. A lot of decisions need to be made before you actually open your doors or conduct any business. The structure of your corporation needs to be chosen carefully to maximize your future revenue and profits. There are multiple different legal structures you can choose from while making these important decisions. One of the most preferred and prevalent of corporations is the C Corp. This article will give you the basic information you need to understand what exactly a C Corp or a C Corporation is.
Let’s start from the beginning, a C Corp is a legal structure for a corporation where the owners, or shareholders are taxed as separate entities from the business. C Corp, the most common type of corporation in the United States, offers unlimited growth potential through the sale of stocks, with 0 limitations on the number of shareholders that can buy into the corporation. Within the C Corp structure, the profits of the corporation are taxed separately from the owners.
Corporations structures vary by a couple different variables like taxation, liability, profit and dividend systems. The C in C Corp comes from the fact that C Corps incomes are taxed under the subchapter C of the Internal Revenue Code. This means that unlike LLCs, the corporation pays taxes on their earnings before distributing the remaining profits to their shareholders who are then subject to income taxes on the dividends that they receive. This method of being taxed twice is referred to as double taxation.
While corporations structured as LLCs and LTDs can avoid the unfavourable tax format of double taxation, C Corps cannot. In fact, C Corps are more complex and complicated compared to the operations of LLCs. So, how come this form of corporation is the most preferred? Well, that answer has a few different answers. It is not all bad with C Corps as they present several different advantages and benefits to their shareholders.
Benefits of a C Corp Structure
People wouldn’t choose this format of forming a corporation unless there were some tasty benefits to them. First and foremost a C Corp provides its owners with limited liability. This means that, the owners will never be held accountable for the debts of the corporation. Similar to LLCs in this sense, limited liability is a crucial draw for C Corps. Limited liability means that no matter what happens with the corporation in the future, shareholders will only risk the money they invested into the business, and their personal assets will be safe from collectors.
Another way C Corps separate itself from the LLC structure is the perpetual existence. This states that unlike sole ownership where the company ceases to exist at the time of death of the sole proprietorship, a C Crop will continue to exist until the shareholders decide to dissolve or liquidate the corporation. C Corps also present the option of free share transfers. When you buy shares in a corporation you are buying economic and management rights. Unlike LLCs where you can only sell your economic rights to a share, in a C Corp you can transfer both economic and managerial rights of the shares.
A one the many remaining advantages of this corporate structure is the lack of restrictions placed on shareholders. This means anyone can own stocks in C Corporations. This makes them that much more attractive to investors and or venture capitalists. Also, doesn’t hurt to be the oldest type of formal entity with clearly stated laws and rules. C Corp is a time tested and well-established structure of building your corporations.