Choosing the best business entity structure is one of the biggest factors that companies have to consider during the early stages. While a lot of new business entities start as sole proprietorships and partnerships, another option is to structure the business in a way that protects the personal assets of the business owners from the liabilities of companies. That is when they encounter other types of business entities, such as the limited liability company (LLC) and C corp.
What It Is
A C corporation (C Corp) refers to the traditional corporation that many people are familiar with. It is a legal business entity structure that offers protection to the personal assets of the company owners, who are known as shareholders. It also does not limit the number of shareholders and allows multiple classes of stock.
As for taxation, C Corps pay taxes at the corporate level. They are also required to comply with various federal and state requirements.
Benefits of a C Corp
Aside from the features mentioned earlier, the benefits that this structure offers make it an appealing option for many companies.
- A C corporation is a separate legal entity. Once a company registers as a C corporation, it becomes a separate entity from the shareholders. That means that it has its own life. It also has rights, responsibilities, capabilities, and liabilities. It can purchase, own, make contracts and guarantees, as well as lend money or invest funds. C Corps can also sue or get sued in its own name.
- C Corps offer limited liability protection for owners. As stated earlier, the shareholders of a C corporation will have asset protection. That means they will not be held personally liable for any actions, debts, obligations, and liabilities of the company. Additionally, a shareholder’s exposure to possible loss is only limited to how much they have invested in the company.
- Business entities that structure as C corporations will have perpetual existence. Since a C corporation is a separate entity, its existence does not rely on the shareholders. That means that even if a shareholder dies or decides to leave, the company will still continue to exist.
- Transferring shares is easy. Owning shares of corporate stock provides rights, both at the economic and management levels. But, a shareholder has the freedom to sell the said shares to transfer the rights to the buyer. Additionally, transferring of ownership will not affect the operations of the business.
- C Corps can help attract investors. Financing is important in business. The company should be able to cover its expenses to avoid any issues. One way of doing that is to gain investors. Many venture capitalists opt to invest in C Corps. Obtaining bank financing may also be easier if the company is registered with the state.
- No restrictions regarding shareholders. Generally, C corporations do not have any restrictions on who can own stock. Unless the company’s governing documents contain provisions stating otherwise, a C corporation can have as many shareholders as it deems necessary. However, if the company plans on electing S Corp status for taxation, it has to comply with the regulations. Read this article to find out the difference between S Corps and C Corporations.
- A shareholder can opt to be a passive owner. Not all shareholders in a C corporation have to be hands-on when it comes to the management of business operations. That is because a board of directors governs the company and appoints officers who will be in charge of the day-to-day operations. However, shareholders will have certain rights and responsibilities that include the election or removal of directors, voting on major structure changes, and inspection of company books or records.
These benefits are only some of the things a company can enjoy once it organizes its business as a C corporation. There may be state-specific advantages that the company has to check with the governing agency of the state where it plans on registering its business.
Setting Up a C Corp
Once a company is 100% sure that the C corporation is the most suitable structure for its business, it has to proceed to the business formation process. That includes the submission of formal paperwork, payment of fees, and completion of certain tasks.
The incorporation process will depend on state laws. That means the requirements and obligations may vary. However, there are basic steps that all states require. These are the following:
- Choose an appropriate name that abides by the naming regulations of the state.
- Designate the initial directors.
- Appoint a registered agent in the state.
- Register as a C corporation by submitting the Articles of Incorporation or a state-specific form and paying the corresponding filing fee.
- Obtain an Employer Identification Number (EIN) from the IRS.
- Draft the company’s bylaws.
- Draft a stockholder agreement.
- Hold the initial organizational meeting.
- Get the necessary business licenses and permits.
To learn more about the process, check out our state-specific articles on how to form a corporation.
Launching a business venture is more than just opening a shop. It comes with multiple responsibilities. It is also crucial to make the right choices.
Among the most important decisions is choosing the right business entity legal structure. One good option is the C corporation. It offers protection for the company and its owners, along with other several benefits.
However, choosing this structure means that the company will have to properly organize its business with the state where it plans on operating. The whole ordeal requires the completion of some steps.
For some entrepreneurs, the whole ordeal may be a bit overwhelming or too time-consuming. In such cases, it is best to designate the task to a reliable third-party organization like DoMyLLC. Our team of experts can handle the preparation, handling, and filing of formal paperwork. We are also experienced in ensuring compliance with state obligations to prevent any possible risks and legal issues. Contact us to find out more about our services.
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