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The "C" Corporation

C-Corporation

A corporation is the most common business structure. A corporation is an independent legal entity owned by its shareholders.

This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs.

Corporations are more complex than other business structures because they tend to have costly administrative fees and complex tax and legal requirements. Because of these issues, corporations are generally suggested for established, larger companies with multiple employees.

For businesses in that position, corporations offer the ability to sell ownership shares in the business through stock offerings. “Going public” through an initial public offering (IPO) is a major selling point in attracting investment capital and high quality employees.

A corporation’s shareholders, directors, and officers must observe particular formalities in a corporation’s operation and administration.

For example, management decisions must often be made by formal vote and recorded in corporate minutes. Director and shareholder meetings must be properly noticed and documented.

Finally, corporations must meet annual reporting requirements and pay ongoing fees in their state of incorporation and in states where they are registered to transact business.

Taxation is a significant consideration when choosing a business type, and a C corporation is taxed as a separate legal entity (which means no pass-through taxation like a partnership). A business tax return is filed and taxes are paid on the corporation’s profits.

If the corporation distributes profits to the shareholders in the form of dividends, shareholders pay income tax on those distributions. This creates a double taxation of corporate profits.

As with any business type that offers liability protection to owners, a corporation must be created at the state level. Articles of Incorporation (sometimes called a Certificate of Incorporation) in the appropriate state must be filed and filing fees paid.

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