The most common corporation type in the country, a C corporation confers business owners with several benefits, including limited liability, superior capital raising abilities, and certain tax benefits.
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- Limited liability
- No maximum on number of shareholders
- Preferred structure for business owners who want to attract outside investors
- Required to maintain corporate formalities (holding meetings, maintaining meeting minutes, preparing resolutions, etc.) or else risk losing limited liability protection
- Double taxation
C Corporation Basics.
When a business incorporates, by default it becomes a regular corporation—also known as a “C corporation.” A C corporation is an independent legal entity, completely separate and distinct from its owners (known as the shareholders). As an independent entity, the corporation is responsible for its own debts, and its shareholders are normally shielded from personal liability for those debts. This liability shield for shareholders is known as the “corporate veil,” and is perhaps the most significant advantage of incorporating.
A C corporation is owned by its shareholders. The shareholders appoint the corporation’s board of directors, which is responsible for representing the shareholders’ interests, setting the corporate vision and strategy, and making major decisions. The directors also appoint the corporation’s officers, who manage the day-to-day operations of the company. The required officer positions usually include a Chief Executive Officer, Chief Financial Officer, and Secretary.
Because a C corporation is an independent legal entity, it must pay taxes on its income. If and when the C corporation’s profits are distributed to shareholders as dividends, the shareholders will also pay taxes when they file their personal income tax returns. This is known as “double taxation,” and if the C corporation will routinely issue dividends to its shareholders, this double taxation aspect can be a substantial drawback.