Form Your C Corporation Today

20th December 2019

C Corporation

With so many businesses being formed as LLCs, why didn’t we start with this entity type first? That is because the LLC is a zebra in this list of horses. An LLC is a legal entity only and is not recognized by the IRS as a taxpaying business structure.

Corporations can file paperwork with the IRS to be taxed as an S corporation instead. In many ways, S corps are similar to C corps, but there are a few key differences to take into consideration when deciding what’s best for your business. In addition, most experts recommend that you incorporate in the state your business is located in.

Whats The Difference Between An S Corp And A C Corp?

However, in a C corporation, fringe benefits can be deducted as a business expense. C corporations are the most common type of corporate structure in America.

C Corporation

Finally, from a liability standpoint, the LLC structure is hard to beat. It offers liability protection along with the choice of any of the four tax entity structures. A straight S corp or C corp are considered solid from a liability perspective as well. A C Corporation pays its own state taxes and is not subject to this limitation, so especially in high tax states, that structure becomes more attractive.

Sole Proprietorship

One of the more common business structures company owners employ is a https://www.bookstime.com/. Any corporation that does not qualify and elect to be an S corporation under the Internal Revenue Code.

  • Those ongoing fees are necessary for maintaining good business standing, and they vary state by state.
  • A C corporation is permitted to retain earnings in order to improve the company if it complies with the appropriate tax provisions.
  • C-corps have no major restrictions on who can own shares, meaning other businesses and entities both in and outside the United States can have ownership.
  • C-Corporations can range from small companies to organizations with a large number of shareholders and directors.
  • When you file your Articles of Incorporation, you’ll need to pay any required state filing fees.

The details to make this happen are well beyond the scope of this article, but worth noting. A partnership is like a multi-owner version of a sole proprietorship. Most states require very little paperwork to form and maintain a partnership.

Advantages Of A Corporation

To obtain S corp status for a certain year, Form 2553 must be filed no later than March 15 of that year for corporations operating on a calendar year basis. For corporations operating on an alternative fiscal year, it must be filed no later than the 15th day of the third month of the fiscal year. Of course, it can also be filed at any time during the previous tax year. Once you’ve selected an original name, you must fill out and file the Articles of Incorporation form, also known as a Certificate of Incorporation, with the secretary of state’s office.

C Corporation

Once all the paperwork has been signed and accepted, your corporation will be legally and officially formed. Of course you’re not done yet, as there is a laundry list of actions beyond the initial paperwork. In order to break it down and try to make the formation process a little less scary, here’s a basic checklist of what you need to do in order to successfully form and run a corporation. The shareholders receive income in exchange for their buy-in. 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. By default, your corporation is a C corporation for tax purposes. If, at your initial meeting of directors/shareholders, you all decided to become an S corporation, you have to submit the corresponding application.

Stockholder Issues

You will hear about both C Corporations and S Corporations. Both are corporations with charters granted by the state of organization. You can organize in Nevada for the best asset protection laws, for example, and qualify to do business in California. In that case, you will have one corporation paying annual fees in two states . While we like and often use S Corporations, we keenly appreciate the advantages of C Corporations. They certainly have their merit and a place in your entity structure strategy.

The corporation pays income tax on the gains from the sale, and the owners pay the second round of tax when they withdraw the sale proceeds as a dividend. The double taxation of earnings is what keeps most private firms away from C corporation status.

  • As a Business-of-One, you might organize as a single-member LLC.
  • While the C corporation already paid taxes on the profits, shareholders must now declare the dividends as income on their personal taxes and pay tax at their own personal rate.
  • Select a corporate name and file the articles of incorporation.
  • You will hear about both C Corporations and S Corporations.

So, if having the maximum deductions and all of the employee fringe benefits on a tax-free basis is important to you, a C-Corp may be your entity choice. C corporations are also beneficial in terms of taxes because of the ability to distribute profits amongst the owners of the company. Allocating profits in this manner can result in big tax savings. Obtain an Employer Identification Number by filing an IRS Form SS-14. C corporations must also apply for a franchise tax ID 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.

File

This document will need to include a variety of information, such as the name of your corporation and its physical address. Once you have completed your Articles of Incorporation, this document needs to be filed with your Secretary of State. For California purposes, the corporation’s accounting period must be the same as the one used for federal purposes. The first accounting period cannot end more than 12 months after the date of incorporation or qualification in California. The chief benefit of forming a C corp is selling an unlimited number of shares. It’s a built-in funding method that can be crucial to any early-stage small business.

  • Save money without sacrificing features you need for your business.
  • Your choice of entity type has a big impact on many aspects of your business, ranging from taxes to financing to growth strategies.
  • First, you need to be certain that you are investing the right amount of money in your corporation.
  • Any final decision should be made with the help of a tax or legal advisor.
  • When readers purchase services discussed on our site, we often earn affiliate commissions that support our work.

Minutes must be maintained to display transparency in business operations. A C corporation must keep voting records of the company’s directors and a list of the owner’s names and ownership percentages. Further, the business must have company bylaws on the premises of the primary business location. C corporations will file annual reports, financial disclosure reports, and financial statements. One benefit they both offer is limited liability; in both structures, the company becomes a separate legal entity from its owners.

A C corp must also keep records of votes of its board of directors and a comprehensive list of owners’ names , along with ownership percentages. Company bylaws must be kept at the primary business location as well. C corporations and S corporations have quite a bit in common. Owners of a corporation are called shareholders, and they elect directors to oversee business operations. The directors hire officers to manage the day-to-day operations. Profits, called dividends, are distributed to shareholders according the number of shares each owns.

C Corp Vs S Corp

The Articles of Incorporation and any other founding documents should be kept in a secure location. Usually, minutes of board meetings and records of annual general meetings are part of the corporate records. The intention behind keeping centralized records is to be able to easily demonstrate compliance with state and Internal Revenue Service regulations. If you need a flexible structure for an innovative business model, an LLC may be a good way to start. Make sure your operating agreement clearly defines how you will operate the LLC and make changes. Alternatively, C corporations offer a business structure geared more toward raising money and future growth. A corporation may choose to convert into an S Corporation at any point in time, given that it receives the consent of all its shareholders to file for S status.

She is a graduate of Bryn Mawr College (A.B., history) and has an MFA in creative nonfiction from Bennington College. A corporation cannot exist unless it authorizes at least one share of stock. This doesn’t mean that if you decide to authorize 10,000 shares that you have to issue them. Think of it this way, when you cut up a pizza into eight slices, you’ve authorized that number of slices. When you hand them out to your friends, you are in essence issuing those shares of stock, or in this case, yummy yummy pizza. A corporation’s Articles of Incorporation flesh out its planned structure.

The Difference Between A C Corporation And An S Corporation

A Business-of-One taxed as a sole proprietorship may be aching from self-employment taxes. Forming an LLC taxed as an S Corp is a way to reduce that tax burden. By default, a single-member LLC is taxed as a sole proprietorship, and a multi-member LLC as a partnership.

How To Determine If Forming A C

The benefits must also be non-discriminatory, i.e., not designed solely to benefit the owners. This article is for people who want to start a business but aren’t sure which way to structure their company. Keep in mind these statements are general comments for general situations. Always, and I mean ALWAYS consult a tax advisor before selecting an entity type. They are by far the least complex and have the lowest cost of setup and ongoing governance and administration.