Companies use different types of business structures for the benefits and flexibility they offer. C Corporation is one such business structure that helps companies focus on growth without any legal push-backs.
It is a type of corporation that is owned by multiple shareholders or holders of stock. This way, a c-corp can attract large investments from multiple investors. Many companies choose this particular business structure to be able to handle large financial deals via large investments.
For any type of business, the c-corp business structure has multiple benefits, as well as some limitations. The c corporation is one of the most common business types many large companies prefer.
Why Prefer C Corporation?
There are plenty of reasons large companies prefer c corporation business structure. Sometimes these are the particular benefits c corporations offer to the owners. Other times, these are lenient state rules and regulations that make people select this type of company structure.
When you are establishing a business, it is crucial that you understand these different business structures. The particular benefits that a c corporation offers are as follows:
Limited Liability Protection
Just like LLC, the owners in the c corporation are not personally responsible for the debts of the corporation. So when the company is under some debt or issued, the owners of the company are not held responsible. Instead, the company is dealt with as a separate entity. Starting a business is a risky task, and owners usually prefer to keep their life savings from these ventures.
Preferring a c corporation for your business offers you limited liability and does not jeopardize your life savings. Legally, the owners, sole proprietors or shareholders, are not personally responsible for paying off the debts of the corporation. Therefore, many businessmen prefer a c corporation for new ventures.
Raising Capital Investments
Investments are the fuel for the businesses. For new business ventures, investments are crucial. Some businesses prefer small investments, while others face hard times managing heavy investments. C corporations, in this situation, offer a different kind of benefit. As a c corporation can take in new shareholders and members, it can also accept heavy investments from new members.
So, raising capital becomes very convenient, on legal grounds, for the c corporations. Such a business structure includes the shareholders for the dividends. These dividends can be a motivating force to attract new investors for the business. This helps businesses and corporations to avoid hefty interest rates on loans for investments.
Fringe Benefits for Employees
The c corporations are not only beneficial for the owners. Essentially, the c corporation like business structures is more for creating wealth for the investors and shareholders. However, in doing so, these corporations consider many benefits for the employees and other stakeholders. Fringe benefits are among those benefits which are for the employees of the corporation.
Where unincorporated companies and s corporations are not liable for offering fringe benefits to the employees, c corps cannot avoid these benefits. As a result, a c corporation is more attractive for a competitive and expert professional in comparison to an unincorporated business or an s corporation. So for a c corporation, offering these fringe benefits result in more professional and competitive employees.
Continuity of Existence
In a c corporation, there are several shareholders and a board of directors. Unlike LLCs, with transfer or stocks or with the death of the owner, the corporation does not go through alteration. The board of directors appoints a new CEO to ensure the continuity of the business.
Multiple agreements like insurance-funded buy-sell agreements help the partners to keep on performing the business. Hence, when you start a c corporation, you do not have to worry about its continuity.
When starting a c corporation, there surely are many benefits to it. However, there also are some considerations that can render such a corporation challenging. The following are some considerations that can be seen as challenges for the businesses using c corporation structure.
One of the biggest considerations for a c corporation is its double taxation. Business structures like LLC usually are liable for a one time tax only. However, for a c corporation, there exists double taxation. The corporation, as an entity, is liable for the tax for its revenue.
Furthermore, when its shareholders receive dividends and profits, those are also taxed. So in its annual cycle, the c-corporation goes through a double taxation scheme. So before starting a c corporation, do consider that the profits you earn must pay taxes twice.
The corporations are controlled, governed, and regulated by state statutes and laws. Understanding state laws and statutes are not possible for the management of the corporations. This is why hiring lawyers usually seems like a reasonable choice for such corporations. These lawyers tackle the legal documents and other legal aspects of the businesses.
They are hiring these lawyers to ensure the continuity of the c corporations. However, hiring lawyers also creates additional expenses for the companies. These expenses are usually present in all other business structures too. However, for a c-corp, these expenses become regular.
C-corporations collect investments from multiple shareholders and, as a result, divide the profits among those investors. Usually, the profits are in accordance with the share of the partner in the corporation. For instance, if a shareholder owns 25% of the company agreement shares, he is eligible for a 25% share from the profits also.
For the distribution of dividends, these corporations typically go through and require solid documentation. This helps reduce clashes among the investors and shareholders of the company. The company’s directors normally declare the dividends for the shareholders after paying off all the past operations of the company, or else corporations can put their finances in jeopardy.
Basic Structure of a C-Corp
In a c-corporation, and in many other companies, the structure is quite alike. In a C corporation, the owners usually hold one or more positions in the firm. The basic structures for these corporations are as under.
Shareholders, for a c-corporation, are the owners of the company’s stocks. They are usually responsible for approving major decisions like company mergers and selling company-owned assets. Shareholders are also responsible for choosing the directors for the company.
For a c-corporation, the board of directors is the top management. They are responsible for operational and financial major decision making.
For smooth performance, as well as to comply with the state laws and statutes, the c corporations are responsible for appointing particular officers. These officers may include Financial Officers, Chief Executive Officers, Company President, and secretary.
Corporations like c corporations depend on the efforts of their employees to earn profits. In return, corporations give these employees a respective salary.
Steps to Initiate a C-Corporation
Once you decide on starting a c corporation, the next steps are quite simple and straightforward. Different states tackle the c corporations a little differently. However, in general, the steps to initiate a c corporation are quite similar in different states.
Start with Name Reservation
Before anything, you need to decide on a name for the corporation. Once you do that, you need to register that name with the state. You can very conveniently use a free business name search to pick an available name for your company.
Hiring Registered Agent Services
States usually demand that the c corporations hire a registered state agent to deal with the legal formalities and documentation. So, find a registered agent to handle the corporation registration on your behalf.
Going for Delaware c-corp can have its benefits for the owners as the state of Delaware has multiple business-friendly laws. You will need a registered agent to cover the documentation in Delaware.
Filing with State
For the registration of the c-corporation, the owners need to file the certificate of incorporation with the state. The Secretary of the state is the one who usually takes these certificates from the corporations.
Board of Directors and First Meeting
Directors are crucial for the success of a c-corporation. The reason is that they fill the gap between the company officers and the shareholders of the company. The first meeting of the board of directors helps the directors to devise strategy and goals for the company. This meeting also helps create corporate resolution.
Getting Permits and Licences
In states, the corporations usually require various certificates, permits, and licenses to produce and sell products/services. The company owned lawyers are usually the ones responsible for all these permits and licenses. Before the company gets into doing business, getting these licenses is crucial.
Getting an EIN
Employee Identification Number, issued by Federal Authorities, let corporations hire employees. Employees are the backbones of any company. C-corps can apply online to get the Employee Identification Number with ease.
Once you complete these steps, you can start operating your c corporation without any trouble.