What is a C corporation?
A C corporation, also referred to as a general for profit corporation, is one of the most common entity types chosen by new businesses. One of the reasons for their popularity is that the C corporation provides a business with the ability to deduct certain benefits, like employee health insurance and dental plans, which can add up to substantial savings per year. Additionally, corporations allow the issuance of stock, which is a benefit for entrepreneurs and venture capitalists who may want to invest in your business.
How does forming a corporation protect the owners of a business?
Forming a C corporation defines a business as its own legal entity, separate from the owners of the business. This prevents your personal assets such as your home, vehicles, or other holdings from being targeted by creditors to pay debts accrued by the business.
A properly formed C Corporation protects its owners from this liability. For example, if under unfortunate circumstances your company should face a lawsuit, the assets of the corporation would be targeted, not the assets of the owners. C corporations also retain their own credit rating, separate from that of the owners.
In the event of loan default or other credit-related issues, your personal credit would remain intact should the business go into bankruptcy. This also works the other way around; an owner's less than ideal credit rating will have no bearing on the credit of the business.
What kinds of businesses should file for a corporation?
Corporations are often chosen by business owners who require a formal business structure with flexible ownership options. C corporations allow the purchase of stock not only by individuals foreign or domestic, but also by other companies or legal entities.
This aspect of the corporation makes them an attractive choice for businesses that want to raise capital or gain the attention of potential investors.
Corporations also exist in perpetuity, as long as they are properly maintained and meet their obligations. So, unlike other entity types, the existence of the business is not tied directly to those who own the business.
To learn more about the differences between an llc and a corporation, take a look at our detailed llc vs corporation comparison.
What are the maintenance requirements of a corporation?
Corporations are required to comply with annual corporate formalities, including providing notice of annual meetings to the directors and shareholders, filing a Statement of Information with the Secretary of State, holding annual meetings, and documenting those meetings with corporate minutes.
Each state has its own set of requirements and deadlines to consider, and meeting those deadlines is a requirement in order to prevent your business from falling out of good standing. Businesses who fail to stay in good standing can file a reinstatement once their requirements have been met, but they are at risk of losing the liability protection provided by the corporation in the meantime.
MyCorporation can help you complete your annual requirements automatically if you opt to choose our business maintenance package.
What are the tax advantages of forming a corporation?
The potential tax benefits of filing a corporation, much like any other entity type, are based solely on the structure and financial details of the business itself. Corporations allow deductions for benefits like medical insurance and retirement plans for employees, but are also subject to "double taxation", where income is taxed at both the corporate and personal level.
Losses are also fully deductible for a corporation, and a corporation's profits can be left in the business for further expansion of the business. These benefits don't always outweigh the potential negatives for a business, so it is a wise decision to consult an accountant about the best entity type relative to your business goals.
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