A C corporation is a legal entity that exists separately from the people who own, manage, control, and operate it.
A C corporation issues shares of its stock, as evidence of ownership, to the person (s) or entities that contribute the money or business assets the corporation uses to conduct its business.
The stockholders or shareholders own the corporation and are entitled to any dividends the corporation pays. If the corporation liquidates, they are entitled to all of the corporation’s assets after all creditors are paid.
A C Corporation is recognized by the law as an individual entity, separate from its shareholders (owners). Shareholders enjoy limited liability for the debts, obligations and liabilities incurred by the business as well as liability stemming from possible legal action. Protection of shareholders’ personal assets is one of the major reasons business owners choose to incorporate (same treatment in S Corporations and/or C Corporations). Normally, shareholders cannot lose more than the amount they invested in the corporation. If the corporation goes bankrupt, the shareholders will not be liable for its debts. Should someone sue the corporation and the corporation is found liable, they can take
the corporation’s property to satisfy the judgment but if that property does not satisfy the judgment, they will not be able to take a shareholder’s personal assets, i.e. home, car, and bank account. An exception to a shareholder’s limited liability happens when
the corporation has recklessly harmed people or has been used to perpetuate a fraud, assuming the plaintiff can establish that the shareholders that were participating in this fraud and individually sanctioning it
C Corporation Taxation
C Corporation shareholders do not report any of the business income and expense on their individual tax return.
The corporation files tax returns and pays its income taxes (at generally lower tax rates than would individuals) while the individual shareholders report and pay personal income taxes only on monies paid them by the corporation as wages.
Why Form a C Corporation?
C Corporations best serve owners who want the limited liability, a more formal business structure, the ability to reduce overall income taxes and accumulate assets in the business, and ways to more easily raise capital. Official documents, typically called an Articles of Incorporation must be filed with the appropriate state in order to form a C Corporation.
Some Points to Consider When Forming a C Corporation
- Official documents, typically called Articles of Incorporation, must be filed with the appropriate state in order to form a C Corporation and state filing fees must be paid
- A C Corporation is considered by the law to be an individual entity, separate from its owners (shareholders)
- A C Corporation can have any number of shareholders
- State filing fees must be paid
- A C Corporation is considered by the law to be an individual entity
- You must hold and keep minutes that document the meetings of the stockholders and board of directors