A C corporation, or C corp, is a legal company. This arrangement taxes the company and its stockholders separately. This is the most popular kind of company and is doubly taxed at the corporate and individual levels. This corporate structure differs between C corp and LLC. S companies and LLCs separate the company's assets from its owners, but their legal frameworks and taxation vary. B-corporations, or benefit corporations, are another contemporary form. Despite having the same tax advantages as C companies, this organization has a different goal, transparency, and responsibility.

C businesses pay taxes on earnings. They may then pay shareholders dividends from the remaining earnings. The stockholders then pay personal income taxes on these dividends, illustrating double taxation. However, a C corporation may reinvest its after-tax profits at a lower corporate tax rate. C corporations must conduct at least one annual shareholder and director meeting and preserve the minutes for transparency. They must also maintain accurate voting records for directors and a list of shareholders with their respective ownership stakes. The corporation is expected to have its bylaws accessible at its main place of business. Moreover, C corporations must submit annual reports, financial disclosures, and financial statements.

Steps to Establish a C Corporation

Forming a C corporation shares similarities with setting up other business types. Here’s how to go about it:

• Name your company uniquely and register it.
• State-specific requirements require submitting the articles of incorporation to the Secretary of State.
• C businesses often issue stock to shareholders, who become part-owners.
• C companies also need an EIN by submitting Form SS-4.

C companies must pay state, income, payroll, unemployment, and disability taxes. However, requirements vary by jurisdiction. Additional rules may apply depending on the company. Corporate governance is essential beyond registration and taxes. This involves creating a board of directors to oversee company administration and operations. When an agent represents a principal, a board reduces conflicts of interest and moral hazard.

Pros and Cons of a C Corporation

Limited personal responsibility for owners, directors, executives, and workers is a major advantage of C corporations. This implies firm employees have no personal financial obligations for the business's legal liabilities. Additionally, C corporations have the advantage of continuity, surviving ownership changes, and management shifts.

C companies may attract many owners and stockholders. However, they must register with the SEC after reaching specified criteria. Their ability to issue stock helps them raise substantial capital for new ventures and expansion plans. Another advantage is the clear distinction between the management and the shareholders. This separation ensures the longevity of C corporations beyond the lives of their original owners, including shareholders. This structure also allows for the potential of passive income for the owners through ownership stakes.

However, there are downsides. Incorporating a C corp may be costlier than other business forms, including higher legal fees. They also face more regulatory oversight, which can increase legal costs. Taxation is another important consideration. C corporations are taxed twice: first at the corporate level and again when dividends are issued. Unlike S businesses, C company stockholders cannot deduct business losses from their taxes.

Differences Between C Corporation and S Corporation

Alternative company structures like S companies enable shareholders to receive revenue, deductions, and losses. Like C corporations, S companies provide limited liability protection and are incorporated similarly. However, they differ significantly in aspects of taxation and ownership. The double taxation of earnings at the corporate and shareholder levels, when dividends are given, is a downside of C companies. In contrast, an S company is "pass-through." Without corporate income taxes, its gains are taxed directly by shareholders. S company ownership is regulated more strictly. C companies can have infinite stockholders, whereas S corporations may only have 100. C companies, S corporations, and limited liability organizations cannot own S corporations.

Tax Implications

Formed in 2019, The American Jobs Plan, unveiled by President Biden this year, would change the corporate income tax for C corporations from January of next year. C corporations will have their tax rate increased from 21 % to 28 % for years after December 31, in the future. Fiscal years starting in 2021 and ending in 2023 also complicate tax calculations. Any income these cases generate in 2023 will be taxable at the rate of C corporations (i.e., 16 % plus a surcharge).

Alternative Business Structures

While C corporations are popular, they might not always fit every business best. The choice heavily depends on the specific needs and circumstances of the business. Here are some alternative business structures to consider:

Sole Proprietorship

This is a good option if the person doesn't necessarily need to separate private and business funds. This is the simplest form of single-owner company, with low visible burdens and a high degree of control. The drawback, however, is that there's no separation between the owner's personal and business liabilities and assets. A sole proprietorship places all the responsibility for any legal or financial obligations on its owner.

Partnership

Partnerships are sole proprietorships with multiple owners sharing the same liability and tax treatment. In a general partnership, each partner repays the company's earnings and losses on their tax returns, personally assuming debt. Some types, such as limited partnerships (LP) and limited liability partnerships (LLP), fall into specific business categories.

Limited Liability Company (LLC)

Therefore, we can conclude that LLCs represent a compromise between the ease of use of partnership and liability protection afforded by corporations. This is because an LLC prevents the owners or members from being held responsible for debts incurred by that business. As for taxes, the LLC can be treated as a sole proprietorship or partnership. This makes it the preferred format for small business owners, who appreciate its flexible and easy operation. Since an LLC is not a corporation, it must not file Articles of Incorporation with the state business entity registration office. Instead, founders simply submit copies of their constitution (organizational structure) and financial statements. Like a corporation, an LLC will also need to designate an agent for official communications.