There are various business entity structures that companies can choose from. One of the most common is the corporation, which is also known as a C corp.
Understanding What It Is
Generally, a C corp is a structure recognized by states as a separate entity from the business owners. Because of this, the company is considered as its own legal entity that can enter litigation. To start a C corp, a company needs to follow requirements set by the state where it wants to register its business operations.
Advantages Of Forming A C Corp
There are many advantages to starting a corporation. Those include asset protection, ease in transferring ownership, better access to capital, and business continuity.
- Personal Liability Protection – As stated earlier, a corporation is a separate entity. Because of this, the owners benefit from asset protection. They will not be held personally liable for any action, debts, and legal obligations of the company.
- Business Security And Perpetual Existence – Compared to other business entity structures, corporations offer much more flexibility when it comes to transferring ownership. It also allows perpetual life for a company. That means even if an owner dies or decides to leave the business, the ownership stocks can still be transferred to others.
- Access To Capital – In most cases, a corporation sells ownership through stocks. This means that the company can easily raise funds by selling stocks, which gives them access to more funding.
What It Takes To Be A Shareholder
The owners of a corporation are called shareholders. Each of them owns a percentage of the business based on the number of shares that they hold.
There is no limit as to the number of shareholders necessary to start a C corp. Because of this, C corps can open up shares to an unlimited number of investors.
With more investors coming in, the company gets more funding. In return, it will have more opportunities to pursue business growth. The shareholders of a company can change through time. That means a C corp can seek additional funds or push for expansion if necessary.
Shareholders are the ones who vote for the members of the board of directors. This group is in charge of governing the company. It acts as the management team that makes big decisions and carries out the company’s policies.
C corp shareholders have voting rights that give them power over the company and its operations. So it is important for a company to have shareholders who have an understanding of the business industry and have a vision for the corporation.
A common question raised by many new entrepreneurs who want to start a C corp is: Who can be shareholders?
In the United States, the rules regarding the owners of a corporation are not as strict as some people may think. In fact, U.S. citizenship or permanent residency is not necessary for a person to buy stock in a C corp.
The following can be members working together for a C corp:
- Individual citizens of the U.S.
- Individual citizens of foreign countries
- Other business types such as LLCs, S corps, partnerships, and the like
- Foreign companies
Choosing The Right Members To Work With
When starting a business, it is important to find the right people to work with. Aside from the financial aspect, the company has to take a lot of considerations to make sure that all members of the corporation can help the business grow. Here are some things to look for:
- Financial stability is among the most obvious considerations.
- The members should be able to bring helpful skills and experience to the company.
- They should share similar values, vision, and entrepreneurial spirit.
- A member should not have a lot of personal baggage that could affect the business.
- Each member of the company should have something to offer, such as resources or even credibility.
- Shareholders should have good business ethics.
- Each member should respect each other.
- It is best for an entrepreneur to partner with people who match the same level of obsession.
- The importance of integrity should not be disregarded.
Forming A C Corp
Once the initial members have been decided, a company can start a C corp. While the formation process may differ from state to state, there are some basic steps that all states follow. Here are some of them:
Step 1: Choose an appropriate name for the corporation.
States have naming guidelines for business entities. For instance, a C corp should have a proper designator. It needs to have the word “Corporation,” “Incorporated,” or “Limited.” Any of the abbreviations of those terms, such as “Corp.,” “Inc.,” or “Ltd.,” is also acceptable. It is prohibited to use any term that could confuse the company with a government agency.
Additionally, all business entities should ensure their name is distinguishable. That means a corporation can not use a business name if another entity in the state has already taken it. A name check on the database of the governing agency in the state is necessary to ensure the availability of a business name.
Step 2: Select a registered agent.
States require all business entities to nominate and maintain a registered agent to accept all legal and government correspondence on behalf of the company. Find out more about the qualifications through our state-specific articles.
Step 3: Appoint directors.
In most cases, the business owners appoint themselves as directors. However, a C corp director doesn’t need to be an owner. The number of directors will be based on state regulations. Some states require a certain number of company directors, while others let C corps decide.
Step 4: File formal paperwork.
The official registration of the company will be done through the submission of formal paperwork. In most states, this is known as the Articles of Incorporation. It comes with a filing fee.
Those are only some of the steps a company needs to take to form a C corp. For a better understanding of state processes and requirements, consult with our team of experts at DoMyLLC. We can also take care of the filing of formal paperwork and serve as a registered agent. Contact us to find out how.
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