The standard corporation, also called a C-Corporation, is the most common corporate structure. The corporation is a separate legal entity owned by the shareholder(s). Because of this, the shareholders cannot be held personally responsible for the debts of the corporation. The shareholders’ personal liability is typically limited only to the amount the shareholder invested in the company.
Taxation implications are usually a significant consideration when deciding which corporate structure to choose. The shareholders of C corporations may experience double taxation, which simply means that corporate profits are taxed at both the entity and individual levels. Profits of the business are reported and taxed at the entity level first. Then if the corporation distributes any portion of the remaining profits to the shareholders in the form of dividends, the shareholders must report the dividend as personal income and pay taxes on it at the individual level.
Advantages of a C corporation
- Shareholders of a C corporation are typically not personally responsible for the debts and liabilities of the business
- C corporations can have an unlimited number of shareholders
- Ownership of a C corporation is easily transferable through the sale of stock
- C corporations have unlimited life extending beyond the illness or death of the owners
- Additional capital can be raised by selling shares of the C corporation’s stock
- Potential customers may perceive a C corporation as a more professional entity than a sole proprietorship or partnership
- C corporations are generally audited less frequently than sole proprietorships
- Certain C corporation business expenses may be tax-deductible
- Forming a C corporation can result in self-employment tax savings
- C corporations may provide a number of income and tax savings
To create a C corporation the proper formation documents, typically called the articles of incorporation or certificate of incorporation, must be filed with the appropriate state agency and the necessary state filing fees paid.