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Form Your C Corporation

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A C Corporation is recognized by the law as an individual entity, separate from its shareholders (owners), many times treated as a human being.

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. 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, 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.

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.

It should be noted that shareholders are required to pay income taxes on income from dividends paid by a C Corporation even though income taxes have previously been paid by the corporation.

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 a Certificate of Incorporation or Articles of Incorporation, must be filed with the appropriate state in order to form a C Corporation. MaxFilings can do this for you.

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Some Points to Consider When Forming a C Corporation

  • Official documents, typically called a Certificate of Incorporation or 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
  • Legally, a C Corporation is separate entity from its owners (shareholders)
  • There can be some limitations as to the kind of business a corporation is allowed to conduct
  • A C Corporation can have any number of shareholders
  • Shareholders normally enjoy limited liability and can lose no more than the amount they invested in the corporation.
  • You must hold and keep minutes that document the meetings of the stockholders and board of directors
  • There can be some limitations as to the kind of business a corporation is allowed to conduct

    Limited Liability
  • Shareholders normally enjoy limited liability and can lose no more than the amount they invested in the corporation. Shareholders They cannot normally be held liable for legal judgments against the corporation or for any of the corporation’s debts or obligations -
  • Protection of shareholders’ personal assets is one of the major reasons business owners choose to incorporate
  • Shareholders can be held liable when the corporation has recklessly harmed people or has been used to perpetuate a fraud

    Raising Capital
  • It can be easier to get additional capital than with some of the other types of business since you can issue and sell stock or a variety of other financial instruments as evidence of interest in the corporation
  • The sale of stock is sometimes subject to state and federal securities laws
  • Ownership can be easily transferred by selling stock in the corporation
  • Employees frequently prefer to work for a corporation that can offer them stock options and stock bonuses
  • In a sense a corporation is immortal and perpetual since it does not end with the death of a shareholder owner as do some of the other business types

    Taxation
  • Corporations are normally audited less frequently than sole proprietorships and partnerships
  • C Corporations file tax returns and pay income taxes but since tax rates are lower for corporations, owners can (by dividing profits) accumulate more (in the corporation) than is possible with pass-through taxation
  • Shareholders face double taxation as they are required to pay personal income taxes on dividends paid them by the corporation
  • Corporations can reduce owners’ self employment taxes

    Owners & Employees
  • Owners working in the business are employees and are therefore eligible for certain fringe benefits such as group insurance plans, retirement and profit sharing plans, and tax-favored stock option and bonus plans
  • Employees frequently prefer to work for a corporation that can offer them stock options and stock bonuses
  • In a sense a corporation is immortal and perpetual since it does not end with the death of a shareholder owner as do some of the other business types

    Public Perception
  • The general public normally thinks of corporations as being more substantial than sole proprietorships and partnerships

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