When we use the word corporation for a business, it gives a vague idea that the company is LARGE and operates at a big scale. However, it is not that simple. The corporation itself is a complex term that is of various classifications. In this article, we will describe what does c corporation means and clarify how it differs from other business structures.
Check out this guide to understand “How to register a company in the USA?“
What Is A C-Corporation?
C Corporation or C-corp is a business structure that consists of shareholders, a board of directors, and officers that work in association to run it. As it is bound by the regulations stated under the “Internal Revenue Code’s subchapter C,” this business structure is termed a C-corporation. It offers limited liability protection to its owners and shareholders, protecting its investors in case of any business loss. Not only financial liability but the legal liability of the c-corp is of the corporation, not the business owners.
It is its tax structure that mainly distinguishes C-corp from other business entities. Under the C-corp, all the shareholders or business owners are taxed separately from the profits gained from dividends. Along with this, the c corp company must also pay the corporate income taxation to the IRS as a single entity. Therefore, this legal structure is subject to double tax.
Ownership and Shareholders:
The C corporations offer a staggering advantage regarding the ownership of shares. Whether the citizens of the United States or not, the outsiders can also gain the corporation’s ownership. Further, as such, there is no limit regarding the number of shareholders in a C-corp. Still, it must register with the Securities and Exchange Commission (SEC) after reaching a specific limit. As per the Securities Exchange Act of 1934, once the c-corporation hits $10 million in assets and has 500 shareholders, registration with the SEC is mandatory.
Usually, C- Corporations are publicly traded businesses. So, Indeed it is a gigantic business structure that requires proper management to work smoothly. The team’s Board of Directors manages the topmost tire and ensures proper C-corp administration. They will hold meetings from time to time to discuss the corporation’s merger proposals and by-laws.
What are the Pros and Cons of C-corporation?
Choosing a C-corp as a business structure has several pros and cons. The pros mostly outweigh the cons, which is why it is one of the most preferred business structures among United States companies.
Pros of a C-Corporation:
- This business structure offers Limited Liability protection to all the officers, shareholders, and directors.
- There is no limit to the number of shareholders of a C-corp.
- It is easier to raise equity than any other business structure, which can help fund the corporation’s future projects.
- Personal taxation amount is less than the Partnerships, Sole proprietorships, S-corps, etc.
- The credibility of business rises which forms a good influence in the market.
- C company continues to operate independently even with the change or loss of owners.
- Shareholders and owners from outside the United States can be a part of C-corp.
Cons of C-Corporation:
- The most prominent loss of c-corps is that they are subject to double taxation.
- It is expensive to set up and operate such an enormous business structure.
- Absence of choice for shareholders to deduct the loss on personal tax.
- There are more complex rules and regulations for a c-corp to operate in the United States legally.
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C-corporation V.s S-corporation
C-corporation and S-corporation share the similarity in the fact that both consist of a standard business structure consisting of directors, shareholders, and Officers. Further, both corporations provide limited liability protection to their shareholders and owners.
Another difference between C and S corp is their ownership limit. Where the C corp can have unlimited shareholders, and s-corp can have a limited number of shareholders.
How to start a C-Corporation in the United States?
In order to form a C-corporation, the following process needs to be followed;
- Once C-corporation is chosen as a business structure, the next thing is to pick a business name for the company.
- Select a location for business in the USA
- Hire a Registered agent
- Register the company with the state by filling out documents like the article of Incorporation
- Get an EIN for tax purposes
- Apply for necessary licenses and permits
- Get a physical mailing address
- Get a phone number
- Open a Merchant account for business
- Issue stocks to the shareholders
While incorporating a business, trustable assistance can help a lot. In registering your business, Lottalegal can become your helping hand. We have a team of registered agents that can help register a business in no time. Apply now to connect.
After hustling for ten years as an attorney, now, Jason Currie has dedicated his life to his one and only love, writing. He writes pieces on finance, business, and taxation for entrepreneurs and small or large businesses using his former proficiency in legal works. Last year, he even published one more volume of his highest-selling book regarding ways of increasing income, which was a huge success. Currently, he is living with his wife and three daughters in Los Angeles.
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