What is a C Corporation?
A C corporation is a legal structure that allows a business to act as a separate legal entity, which limits an owner’s financial responsibilities in the case of lawsuits, fines, or defaults against the company. Corporations are looked at as individual taxpayers and have a responsibility to report all business earnings by the company.
Benefits of Starting a C Corporation
- Lower risk of audit by IRS
- Can deduct benefits and expenses as tax write-off
- Increases company reach & potential
- Increases ability to raise capital
- C corporations have potential to live on well past the original owner’s lifespan
Downsides of Starting a C Corporation
- Taxes are more complex
- Taxes must be paid twice (company level & shareholder earnings)
- Filing fees can be costly
- Compliance with government rules and regulations requires extra time and resources
In order to be eligible to file for a C corp, your filings must show a proper amount of investment capital, and you must issue stock to initial shareholders. Additionally, C corps are required to hold annual director and shareholder meetings, where decisions are discussed and made about the company. These meetings must be accurately recorded and timestamped to ensure full transparency of the company to its shareholders.
Corporations are also required to fully disclose their financial statements and reports on a quarterly basis.
How to Form a C Corporation
Step 1: Choose Name of C corporation
Choosing the name of your corporation is the first step to forming a C corp. The name you choose should be unique to your business as well as meet any legal standards set for naming a corporation in your state. Once you decide on a name, you should reserve it with your Secretary of State if your state allows you to do so.
Step 2: Draft Articles of Incorporation
Drafting your company’s Articles of Incorporation requires you to provide information such as the name of the corporation and a physical address. Once this step is complete, file your document with your Secretary of State. Depending on the state you are registering in, there may be a filing fee required.
Step 3: Issue Company Stock
Issuing company stock will allow shareholders to become partial owners of the company, a vital step to forming a C corp.
Step 4: Obtain Employer Identification Number (EIN)
An Employer Identification Number (EIN) can be applied for online with the IRS. This number is extremely important to starting your C corp, because without it, you will not be able to report or pay taxes for your corporation.
Step 5: Create Bylaws and Voting Procedures
Bylaws and voting procedures are a set of rules that help govern your corporation and dictate how it is run on a daily basis. This process is rather straight forward and there are already easy-to-use forms that can be downloaded to complete this step.
Step 6: Apply for any additional licenses, permits, or identification numbers required
Forming a C corp varies by state, so make sure you look into your states requirements when applying for one. For example, a separate EIN is required to pay disability, payroll, and unemployment taxes.
Step 7: Amend Articles with Secretary of State
Lastly, amend your articles of incorporation with the secretary of state’s office, including your bylaws and a detailed description of what kind of business will take place under the corporation as well as the number and classification of stock shares. Once everything has been double checked and submitted, it can take anywhere from four to six weeks to receive your certificate of incorporation from the state.
If you are serious about forming your business into a C corporation, I recommend using Bizee, as it is an easy-to-use platform that will help you get off to the right start. In addition, you should look into your states requirements for filing to become a C corp and the fees associated with filing your articles of incorporation, licenses, permits, and more, so that you can get a good idea of how much it will all cost you before getting started.