Frequently Asked Questions - Business Registration

FAQs - Business Registration

FAQs

 

Protect your personal assets with this popular corporate structure.

he most common type of corporation in the U.S. is the C Corporation.

By forming a C Corporation, business owners create a separate legal structure that helps shield their personal assets from judgments against the company. C Corporations have a specific structure that includes shareholders, directors, and officers.

The C Corporation is a time-tested business formation. It has many advantages, including:

  • Limited liability for directors, officers, shareholders, and employees
  • Perpetual existence, even if the owner leaves the company
  • Enhanced credibility among suppliers and lenders
  • Unlimited growth potential through the sale of stock
  • No limit on the number of shareholders, although once the company has $10 million in assets and 500 shareholders, it is required to register with the SEC under the Securities Exchange Act of 1934
  • Certain tax advantages, including tax-deductible business expenses

The C Corporation structure does have its drawbacks. For instance, a C Corporation's profits are taxed when earned and taxed again when distributed as shareholders' dividends, what's known as "double taxation." Shareholders in a C Corporation also can't deduct any corporate losses. To avoid these concerns, many small business owners choose to form an S Corporation instead.

 

 

A C Corporation (also known as a general corporation) is a unique business structure separate from its owners. Corporations are formed under the laws of a particular state and are then subject to the laws and regulations of that state. Corporations allow owners to separate and protect their personal assets from the debts and obligations of the business. In a properly formed and managed C Corporation, a judgment against the business should not affect an owner's home, car, savings, or other personal assets.

Shareholders own a corporation and appoint a board of directors to oversee corporate decisions and policies. Directors typically elect officers to manage a C Corporation's day-to-day affairs. Since a C Corporation has a perpetual existence, it does not dissolve if an owner dies or leaves the business.

 

 

Ownership of an S corporation is only available to persons who are U.S. citizens or naturalized, resident aliens. Other entities are not permitted to own shares of an s corporation. One of the "pros" in the pros and cons of owning an s corp vs. a c corp is the fact that s corporation taxes are passed to the company's owners who must report their profits and losses directly on their personal income tax return at the end of each year. Because of this, s corps do not have to file taxes for their business. C corps, however, must file taxes with both the IRS, and the owners must additionally report their company share of profits on their personal tax return.

 

 

C Corporations file IRS form 1120 to report corporate income to the Internal Revenue Service. The IRS taxes company profits at corporate tax rates and dividends paid to shareholders at individual tax rates. For this reason, you may hear tax professionals refer to "double taxation" of a C Corporation.

C Corporations can elect "pass-through" taxation by applying to the IRS for status as a Subchapter S Corporation (IRS form 2553). The S Corporation provides the same protection from personal liability. However, owners can report their share of profit and loss in the company on their individual tax returns. The S Corporation files IRS form 1120S to report income.

S Corporations have a number of restrictions. Most notably, only U.S. citizens or permanent residents may own an S Corporation. An S Corporation may not have more than 100 shareholders.

 

Articles of Incorporation or Certificate of Incorporation, depending on the state.

C Corporations file IRS form 1120 to report corporate income to the Internal Revenue Service. The IRS taxes company profits at corporate tax rates and dividends paid to shareholders at individual tax rates. For this reason, you may hear tax professionals refer to "double taxation" of a C Corporation.

The company is owned by shareholders, who elect directors. The directors set a vision for the corporation and are responsible for the management of the corporation. The officers and managers hired by the directors are responsible with carrying out the vision on a day-to-day basis.

 

Most companies form C Corporations in the state in which they will primarily operate or the state of Delaware so that they can have access to the State's courts and business-friendly laws. Advantages of forming a C Corporation in your home state include:

  • Typically the least complicated, if you only plan to operate the business in your home state.
  • Avoid paying franchise taxes and filing annual reports in more than one state.
  • Usually costs less to incorporate locally.

Many companies conduct business throughout the United States and abroad. A C Corporation with business locations in multiple states may incorporate in a single state, then register to do business in other states. This means that C Corporations must formally register, file annual reports, and pay annual fees in every state in which they conduct business. The Business License Compliance Package includes: An overview of the licenses, permits, and tax registrations identified for your business.

 

 

Yes. State laws require all corporations to maintain a registered address with the Secretary of State in each state where they do business. The person or company located at that address, known as the Registered Agent, must remain available during all business hours. A Registered Agent receives and forwards important legal documents and state correspondence on behalf of the business.

 

 

Most states require C Corporations to file annual reports and pay franchise taxes to maintain their good standing. Failure to file annual reports and pay franchise taxes can result in fines, notices, and the inability to conduct business.

State laws require C Corporations to hold annual meetings of shareholders and directors and record meeting minutes. Owners and directors of a C Corporation use corporate minutes to reflect changes in management and important corporate activities.

The Company Corporation can assist you with all of your internal documentation needs (link to Compliance Coaching services) Additionally, almost all state, county, and local governments require C Corporations to complete business license, permit, and tax registration applications before beginning to operate.

 

 

Generally the owners of a corporation cannot be held liable for the debts and obligations of the corporation. However, if owners treat the corporation as an extension of themselves - sometimes referred to as "disregarding the corporation form" - such as, by commingling personal and corporate funds or making important decisions without holding board meetings or passing resolutions, then creditors can attempt to hold owners liable for the debts and obligations of the company - often called "piercing the corporate veil." The "corporate veil" can also be lost if a corporation is terminated by a state for failure to file required forms or failure to pay required fees and taxes.

The Corporation Company can assist your company maintain its "corporate veil" by providing you with required corporate forms and documents for you to complete and by assisting you with required state filings.

 

 

Since a c corp is its own legal identity (separate from that of its owner), a c corp can own an interest in an LLC.

 

 

An s corp can own a c corp. However, a c corporation cannot own an s corporation. Much of this has to do with the structuring of a c corp vs an s corp. 

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