As a C Corporation, your business is its own legal entity. It is separate from you and your co-owners, and it pays taxes separately from the owners.
The profits are taxed at the corporate level (at a higher rate than when they’re taxed as dividends). The corporation can then distribute money to its shareholders as dividends or keep it within the company.
In addition to being treated as a separate taxable entity in itself, C Corporations can take advantage of certain tax benefits that aren’t available for other types of businesses.
Businesses that should consider a C Corp
If you are planning on offering stock options to employees, raising money from venture capital firms, limiting your liability, or selling stock to the public, then a C corporation is right for you.
In fact, most publicly-traded companies are C corporations because they need the ability to raise funds through public stock offerings. They are also known as public companies or enterprises because they have shares that can be traded on a stock exchange.
What are the Requirements for a C Corp?
- must have a minimum of one shareholder
- must have a board of directors
- must have a president and secretary
- must have a registered agent (who can be an individual or other entity).
- must file annual reports
- must file an income tax return
- must file a franchise tax
The double taxation of a C Corp
At its most basic level, a C corporation is taxed as a separate entity from its shareholders (owners). This means that if you form a C corp, then your company will pay taxes on its profits at the corporate level—and then when those profits are distributed as dividends or salary payments to shareholders, each individual shareholder gets taxed again on their portion of those dividends/salaries (assuming they’re not also getting paid in some other way like through shares in the company).
C Corporation Liabilities
A corporation’s liability is the amount of money that the business is responsible for if it is sued. For example, if someone gets hurt on your property and sues you, then your company would be liable for any damages awarded in court.
The same would apply if someone was injured while working at one of your stores or restaurants and they sue you because they feel that their injuries were caused by negligence on part of management or a specific employee.
Differences Between LLCs and C Corps
- A Limited Liability Company (LLC) can be taxed as either a “pass-through” entity or a regular corporation.
- LLCs are considered to be a hybrid between a partnership and a corporation. This means that the LLC has some characteristics of both types of businesses, but not all of them.
What is the difference between S Corp and C Corp?
C corporations are taxed as a separate entity. S corporations are not taxed as a separate entity. Instead, they’re treated as pass-through entities where all of the company’s income and loss is passed through to its shareholders for taxation.
How do I know if I am an S or C corporation?
It depends on your business structure.
- Check with a tax professional.
- Look at your business structure.
- Ask for help from an accountant, lawyer, or certified public accountant (CPA).
Key Points
- A C corporation is the default business structure, but not every business needs to be structured as one.
- If you want to keep your taxable profits low, consider forming an S corporation or partnership.
- A C corporation is an excellent choice if you’re looking for a long-term, stable company that will provide growth opportunities for your employees and provide value to its shareholders.
- However, if you want more flexibility or don’t care about maximizing profits in the short term then an LLC may be better suited than a C corp structure.
- Be sure to review your setup with a tax professional if you have questions.
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