C corporation definition
/What is a C Corporation?
A C corporation uses a corporate structure that is taxed directly, rather than passing income through to its owners for taxation purposes. Ownership in a C corporation is through shares, which may be in the form of common stock or preferred stock.
Advantages of a C Corporation
There are several advantages associated with forming a C corporation, which are as follows:
Low tax rate. The maximum corporate tax rate is substantially less than the tax rate charged to high-income individuals.
More cash availability. Since less cash is paid to the government, a C corporation has more cash available for other purposes, such as reinvesting profits in the business.
No shareholder liability. Since it has a corporate structure, its owners do not incur any liabilities taken on by the corporation.
Unlimited life. C corporation can survive its owners, persisting as new owners take the place of the old ones.
Multiple classes of stock. The entity can issue a variety of types of stock, such as several classes of preferred stock, which allows it to raise money more easily than other legal forms of business.
Disadvantages of a C Corporation
The single largest complaint about the C corporation is the concept of double taxation. In essence, the corporation is taxed on its earnings, while its shareholders are taxed again when they receive dividends from the corporation.
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How to Form a C Corporation
A C corporation is formed by registering with the secretary of state's office for the applicable state, and issuing stock certificates to its owners. The shareholders then elect a board of directors, which governs the entity in their stead. The board hires a management team, which runs the business for them. The corporate secretary is also responsible for filing an annual report with the secretary of state's office for as long as the entity remains in business.