In addition to electing board members, C corporations must assign someone to serve as a resident agent. The resident agent is the person responsible for a summons or petition in any lawsuits brought against the business. To convert, you need to file the appropriate forms with the IRS and meet specific requirements.
What is a C corporation? + Definition and benefits
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- C-corps are business entities that provide liability protection to owners and maintain more flexible voting and ownership structures than S-corps.
- Founders who provide a US Social Security number, US address, and US phone are eligible for expedited processing; all other users will receive standard processing.
- They handle all paperwork and correspondence at each step of the process.
- The main downside to a C-corp is that it’s taxed twice—once at the corporate level (21%) and another at the shareholder level when dividends are paid.
How a C Corporation Works
It takes less than 10 minutes to fill out the details of your new company. You’ll choose your company structure (C corporation, limited liability company, or subsidiary) and pick a company name. Our instant company name checker will let you know if it’s available before you submit your application. You can add up to four additional cofounders, decide how you split equity between them, and reserve an equity pool for future teammates if you choose. You’ll appoint officers, add an address and phone number (founders are eligible for one year of a free virtual address if you need one), and review and sign your legal documents in one click. Fill out your company details in the Stripe Atlas form in less than 10 minutes.
Basic C Corp Requirements
- States can require these corporations to submit annual reports to prove that they are indeed furthering their chosen cause, and to what extent.
- Instead, corporate profits, losses, credits, and deductions are reflected on individual shareholder returns.
- A C corporation does not dissolve when an owner leaves the business; it is a separate legal entity that can withstand ownership changes.
- They support various public benefits, but they additionally pay out to their shareholders.
In which owners pay income tax on the income they draw from the business. Then, the shareholders of a C corporation must pay income tax on the profits paid to them as dividends, Bookstime which is where the term “double taxation” comes from. The main difference between a C corp and S corp as business structures lies in tax treatment. A C corp pays taxes on all corporate income, and shareholders pay personal taxes on any income they receive as dividends. The profits of a C corporation are effectively taxed twice, first when the company files its income taxes, and again when those profits are distributed as dividends. And, unlike an S corp, shareholders in a C corporation cannot deduct business losses on their tax returns.
A C corporation often has more than one owner, referred to as a shareholder, but it can have just one, as well. These are individuals or other companies who effectively buy into ownership of the corporation by buying shares of the business. Despite that, they are still separate entities normal balance from the business, so these individuals generally cannot be sued or be at risk for actions taken by the company. For example, if a C corp is sued for breach of contract, the plaintiff can collect damages from the corporation’s assets only, not from the personal assets of the shareholders.
Tax Advantages (And More) for C Corps
Once a C corporation reaches a certain size—typically in terms of shareholders or capital raised—it must register with the Securities and Exchange Commission (SEC). C corporations are the most common type of corporation, versus S corporations or LLCs. When choosing between a C Corp and an S Corp, think about how you want your business to run day-to-day. Do you want the structure of a big company or the flexibility of a small business?