C Corporations are formed and regulated at the state level. For a corporation to be recognized as a C corporation, the owners must file Articles of Corporation” with the secretary of state (Incfile, 2019) . Some of the requirements that must be met for a corporation to be recognized as a C corporation are listed below.
Select an appropriate legal name for the business
In cases where the secretary of state reserves business name, reserve the name
File the articles of association and forward them to the secretary of state
Create a list of shareholders and investors
Ensure that the shareholders are issued with stock certificates
Apply for a license
Ensure you have all certificates required to operate in your industry
C Corporations have their advantages and disadvantages. Being a separate entity, a C Corporation protects the directors, investors and shareholders from liability in case of business failure. The owners of the corporation can also transfer its ownership to the public through IPOs. Investors can buy or sell the corporation’s stock between themselves. The most notable disadvantage of C Corporations is that that they are “double taxed” (Cromwell) . The corporation is taxed when it earns income and its shareholders are also taxed when they receive their dividends. Moreover, unlike other businesses, forming a C Corporation involves a lot of legal hurdles.
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C Corporations’ compensation packages range from one industry to the other. However, the general method of compensation maintains income as a percentage of the corporation’s profits. Most corporations use industry compensation rates to determine the amount of money to pay their officers. Given that C Corporations are separate entities from their owners, the compensation is taxed (Cromwell) . What is more, the profits that remain after compensating the officers are also taxed. It is therefore important for the owners of a C Corporation to be familiar with the taxation system in order to be on the right side of the law.
References
Cromwell, J. (n.d.). What Are the Benefits & Disadvantages of a C Corp? Retrieved from legalzoom: https://info.legalzoom.com/benefits-disadvantages-c-corp-22998.html
Incfile. (2019). s a C Corporation Right For Your Business? Retrieved from Incfile: https://www.incfile.com/what-is-c-corporation/
