What Is a C Corporation?
A C Corporation is one of several ways to legally recognize a business for tax,
regulatory and official reasons. A C Corp is simply a way to structure ownership of a
business, and contrasts with other popular business structures including Limited
Liability Companies (LLCs), S Corporations, Sole Proprietorships and others.
Generally, a C Corporation structure is better for larger businesses. This is
particularly true if they intend to publicly trade shares, through having an Initial
Public Offering, or IPO. A C Corporation is much more attractive to potential investors,
including venture capitalists and shareholders because it allows wider ownership of the
The majority of larger businesses in the United States are structured as C Corporations,
although a C Corp could, theoretically, consist of just one person. The information
below will help you decide if a C Corporation structure is right for your business.
How Is a C Corporation Formed?
A C Corp, also known as a corporation, is a type of business entity that is formed and
regulated on a state level. The corporation is formed by filing “Articles of
Incorporation” with the Secretary of State in the state of incorporation. The policies,
articles, cost and regulations for forming a C Corp vary from state-to-state. Details on
exactly how to form a C Corporation can be found at the end of this article.
The corporation is the oldest form of business entity. It has long been a successful way
to do business and allows groups of individuals to pool their resources and capital to
pursue a common purpose, with their risk limited solely to the amount of stock they own.
Although a C Corp is a popular business structure, there are other options for forming
businesses in the US.
The Advantages of C Corporations
Forming a C Corporation does have several benefits:
1. A C Corporation has Limited Liability
Because a C Corp is a separate legal entity, the liabilities of the business are separate
from the liabilities of the directors, investors and shareholders. Generally, the owners
of a C Corporation are protected from being liable for the business’s obligations. This
does not apply in all cases, for example if corporate funds are misused, there is wilful
fraud, or if certain rules and regulations are not followed.
2. A C Corporation Exists Independently of its Owners
A C Corporation can have “Perpetual Existence” — this is in contrast to sole
proprietorships or partnerships where a business only exists for as long as the
proprietors or owners are alive and in the business.
3. Ownership of C Corporations Can Be Fluid and Transferred
Ownership in a C Corporation is decided by who holds the stocks it issues. These stocks
can be bought and sold between investors, and if the company’s shares are publicly
traded on a stock exchange, institutions and members of the public can own stock in the
4. Ease of Access to Funding Through Issuing Stock
If a C Corporation want to raise money, it can hold an “Initial Public Offering (IPO)”
where it “goes public” and offers shares for sale on a stock exchange. This can bring
significant money into a business. They can also choose to issue shares periodically to
raise further funding, although this can dilute the value of existing shares.
5. Enhanced Business or Corporate Credibility
Most of the businesses that are household names are C Corporations. Incorporating as a C
Corp demonstrates to others that you expect to see significant growth and can enhance
the business’s credibility and authority.
The Disadvantages of a C Corporation
A C Corporation does have some disadvantages. Briefly, they are:
- A different tax structure to other types of businesses.
- Double taxation for investors when dividends are paid to them.
- Legal rules, regulations, formalities, and compliance they have to meet.
We cover these in more detail below.
What Are the Differences Between an S Corp, C Corp and LLC?
Two other popular business entity structures in the US are the S Corp and the LLC. They
provide many of the same protections offered by a C Corp but have less formal rules on
taxation, governance and compliance. This can mean more flexibility in how an LLC or S
Corp is owned and funded.
One of the main differences between C Corps and S Corps / LLCs are how income from the
different types of businesses are taxed.
- For LLCs and S Corps, any income earned by the business “flows through” to the
business owners’ / shareholders’ / members’ tax returns, where it is taxed as part
of1 their overall income. The company does not have to file a separate tax return.
- S Corps and C Corps can pass on some of their profits to shareholders as
- S Corps are limited to having a maximum of 100 shareholders.
- A C Corp is taxed at the corporate level — That means it has to file a separate tax
return as a business entity and will need to pay corporation tax on any profits
How Are Profits And Taxes Handled With A C Corp?
A C Corporation is taxed as a separate business entity. Unlike individuals, C
Corporations have to file a designated tax form with the IRS, which is called IRS Form
1120. Additionally, C Corporations have their own tax rates.
Corporations can retain some of their profits and earnings as part of their operating
capital, this can shelter some of the profits from taxation.
C Corporation Tax Rates
The tax rates levied on C Corporations are as follows.
- Up to $50,000 — 15%
- $50,000 - $75,000 — 21%
- $75,000 - $100,000 — 34%
- $100,000 - $335,000 — 39%
- $335,000 - $10,000,000 — 34%
- $10,000,000 - $15,000,000 — 35%
- $15,000,000 - $18,333,333 — 38%
- More than $18,333,333 — 35%
Stock Dividends from C Corporations
A C Corporation may choose to distribute some of the profits of the company as dividends,
which are distributed to shareholders. The percentage of dividends that each shareholder
is entitled to depends on how many shares they own.
Dividends that are distributed to shareholders are taxed twice (double-taxed). They are
taxed first at the corporate level as profit (on the corporation’s form 1120), and again
at the individual level as stock dividends (on the shareholder's form 1040).
What are a C Corporation's Legal Requirements?
A C Corporation must meet certain requirements:
1. Hold an Annual General Meeting (AGM) for the shareholders and the board of
The annual meetings are used to discuss and decide important information, strategic
decisions, opportunities, risks and issues that the corporation will need to deal
2. Issue shares to investors as ownership of the business
Ownership in a corporation is expressed through the issuance of shares. The management of
the corporation is governed by a board of directors who are elected by the
3. Appoint a board of directors
The board of directors select officers who manage the day to day activities of the
corporation. The board of directors also drafts bylaws for the corporation. These are
written protocols that state the way that the corporation will be governed.
4. Assign Certain Positions in the Corporation
A C Corporation will need to have all of the following positions. In a small C Corp, one
person could hold multiple of these positions.
- Shareholders: They own the company's stock and are responsible for
electing directors, amending the bylaws and articles of incorporation and approving
major actions taken by the corporation like mergers and the sale of corporate
assets. They alone are allowed to dissolve the corporation.
- Directors: They manage the corporation and are responsible for
issuing stock, electing officers and making the corporation's major decisions.
- Officers: The corporation must have a president, secretary, and
treasurer. These officers are responsible for making the day-to-day decisions that
govern the corporation's operation.
- Employees: They receive a salary in return for their work for the
Forming a C Corporation
If a C Corporation is right for you, here’s how to form one:
- Choose a legal name for your new business.
- If the Secretary of State in your state reserves business names, reserve the name.
- Draft and file your Articles of Incorporation — These should be sent to your
Secretary of State.
- Establish who your initial investors and shareholders are.
- Create and issue stock certificates to your shareholders.
- Apply for a business license — You may require licenses from your state, county, and
- Apply for any other certificates you need to conduct business — These can vary from
industry to industry.
- Get an
“Employer Identification Number (EIN): from the IRS — You can file online,
or complete form SS-4.
- Apply for any other ID numbers and complete other formalities required by your state
and local government agencies.
- Requirements do vary from one jurisdiction to another, but you will generally need
to get ID numbers for the unemployment, disability and other payroll taxes.
- Appoint a board of directors.
- Assign other positions in the business as required by law.
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