What Is a C-Corporation?

A C-Corporation is just anther way of saying corporation. It means the same thing. Corporations are incorporated business entities that file Articles of Incorporation with the Secretary of State or a similar government agency.

Corporations are independent legal entities; they protect shareholders from personal liability. To say it another way, corporations are treated, for tax purposes, as individuals. They can enter into contracts, incur debts, and they pay taxes separately from shareholders. It is for this reason that corporations enjoy longevity, in that they don’t dissolve when a shareholder changes hands or dies.

Some individuals might feel that corporate status gives business credibility, or enhances the image of the company. However, corporations have strict guidelines regarding distribution of stock, electing a board of directors, and record keeping that might prove too cumbersome for entrepreneurs just getting started.

Pros and Cons of C-Corporations  

Now that you can answer the question, what is a C-Corporation, you may be wondering if it’s a good fit for you and your business.

Here are some advantages of filing a C-Corp application:

  • Limited liability for shareholders
  • A source of funds for publicly held companies
  • Ease of ownership (shares) transfer
  • No limit to the life of the corporation

And here are some of the disadvantages of filing a C-Corp application:

  • Double taxation: once in corporate taxes, and again on shareholder tax returns
  • Extensive tax filings and red tape
  • Ambiguous management if investors have no clear majority interest

How to File a C-Corporation Application

Corporations must file Articles of Incorporation with the Secretary of State or similar government agency, and pay an associated filing fee, which can range in price depending on the state where you file.

You’ll also need to register a business name, and obtain an Employer Identification Number (EIN) to apply for any local/regional permits or licenses.

Total Cost of Operating a C-Corp

The exact fees will depend on the specific state you operate out of. There will be state taxes associated with your business anywhere you go. Additionally, each state charges a yearly fee. Along with this fee, you will also need to submit some kind of annual report, which can include a list of your business’ officers and directors.

Main Differences Between C-Corporation and S-Corporation

The primary difference between a C-Corporation and S-Corporation comes down to double taxation. S-Corporations only have one form of taxation in which the shareholders are allocated all of the income.

In this regard, C-Corporations have much more flexibility in terms of tax planning. These businesses can actually safeguard shareholders from tax liability. C-Corporations also do not have any limitations in regard to the type of shareholders they can have as well as the total number of shareholders who can be present.

Naming a C-Corp

You will need a unique name for your C-Corp before trademarking. Some states will require your business to have a signifier along the lines of “Incorporated,” “Corporation” or “Company” within the name.

By law, you cannot choose a name that is a deceptive misrepresentation for what your company does. Online availability searches are available, so you can check to see which names are taken before going any further.

Publication Requirements

Some states will require a C-Corp to publish a notice related to business formation in the local papers. Some of these states include Pennsylvania, New York, Arizona and Nebraska. The business owner will need to submit this notice to the Department of State within a certain time frame to be formally recognized as a business entity. Failing to meet the deadline could result in an inability to do business within the state.

Registering in a Different State

Wyoming, Delaware and Nevada are some of the most popular states to incorporate in. C-Corp owners have the ability to incorporate in a different state from the one they live and do business in.

You’ll also need to register a business name, and obtain an Employer Identification Number (EIN) to apply for any local/regional permits or licenses.

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