Happy November! We are excited to bring you another post in our monthly FAQ series!
When starting a business, one of the first questions an entrepreneur must ask themselves is, “What entity type should I register?” Here at CorpNet, we are often asked to explain the differences between a C Corporation and an S Corporation, how to file a corporation, and even, “What is a corporation?”
Top FAQs for Setting Up a Corporation
What is a C Corporation?
A C Corporation is a standard corporation. It is considered a separate entity from its owners. This means that the corporation is responsible for any of its debts and liabilities. This is often called the “corporate shield” as it protects the owner’s personal assets from debts and liabilities of the business.
A corporation has a formal structure consisting of shareholders, directors, officers and employees. Every corporation must select at least one person to serve on its board of directors and officers are required to manage the day-to-day activities of the company.
As a separate business entity, a corporation files its own tax returns. As a C corporation owner, you’ll need to file both a personal tax return and a business tax return. In some cases, this can result in a “double taxation” burden for small business owners (see the question on double taxation below for more details).
How do I create a C Corporation?
To create a C Corporation, you’ll need to file the proper formation documents, typically called the Articles of Incorporation or Certificate of Incorporation, with your state’s Secretary of State agency. You will also need to pay the necessary state filing fees. If you incorporate with CorpNet, you simply need to complete the online order form (or give us a call!). We’ll prepare the necessary paperwork for setting up a corporation and file it with the state.
Who can form a C Corporation?
There really aren’t any restrictions on who can form a C Corporation. Some states do require that the directors of a corporation are 18 and older, but there aren’t any age, residency, or other legal requirements for who can form a C Corporation. Keep in mind that the IRS places several restrictions on who can elect S Corporation status.
What organizational roles are required in a C Corporation?
C Corporations have three groups: shareholders, directors, and officers. Shareholders own the C Corporation (via their shares of stock), yet the shareholders typically don’t manage the company. Shareholders do elect and remove directors and can vote on major corporate issues.
The board of directors manages the affairs of the C Corporation and can appoint and oversee officers. It’s the officers who are responsible for the day-to-day management of the corporation.
It’s possible to be a shareholder, director, and officer. In fact, in most states, you can be the sole shareholder, director, and officer for your C Corporation.
What’s the minimum number of directors required for my C Corporation?
Most states allow just one director for a C Corporation, but you can have more. In some states, the minimum number of directors depends on the number of shareholders.
What is double taxation?
Income earned by a C corporation is typically taxed at corporate income tax rates. Then, after the corporate income tax is paid, any distributions made to stockholders are taxed again as dividends on the stockholders’ personal tax returns. This is often called “double taxation” since corporate profits are first taxed on the corporation and then dividends are reported on the individual stockholder’s return.
What is the difference between a C Corporation and S Corporation?
C Corporations are subject to double taxation as described above. A C Corporation entity is required to pay tax at the corporate level. An S Corporation is considered a pass-through entity for tax purposes. This means that the company’s profits and losses are passed through to the individual shareholder’s tax return (and each shareholder is typically taxed on the company’s profits based on their share of stock ownership).
What are the benefits of forming a C Corporation compared with an S Corporation?
A C Corporation can offer greater tax flexibility. In addition, if you’ll be keeping the profits within the company (as opposed to distributing dividends to shareholders), then the C Corporation can shield shareholders from direct tax liability.
Can I form a Corporation with just one person?
Yes. A Corporation can have just one shareholder. Keep in mind that even if you’re the sole shareholder, you will still need to comply with corporate formalities such as director and shareholder meetings, and keeping meeting minutes.
If I have multiple businesses, what’s the best way to legally structure them?
There are three different ways to structure multiple businesses. There are advantages and disadvantages for each approach – and the best structure will depend on your personal situation.
- You can file an LLC or corporation for each of your businesses. This approach isolates the risk to each individual business but involves maintenance fees and paperwork for each of the LLCs/corporations.
- You can file one LLC or corporation and then set up multiple DBAs (Doing Business As) for each of the other businesses. With this approach, you just need to pay your annual LLC/corporation maintenance fees for the LLC/corporation (and not each individual DBA). However, each DBA isn’t protected from the other DBAs. So if one DBA is sued, all the other DBAs under the main LLC/corporation are liable.
- In the third approach, you can create individual Corporations/LLCs for each of your businesses and put them under one main holding Corporation/LLC.
What is your Express Filing Service?
It’s a way to reduce your formation filing timeframe and get your corporation set up faster – sometimes as fast as 24 hours or even the same day! To understand the express filing timeline, it’s important to understand there are two different processing times: CorpNet and the state.
With the Express Filing Service, we’ll process your documents the same day (if submitted, Monday through Friday, before 4 pm PST). Depending on your state, we’ll hand-deliver, fax, or send your documents via courier – whatever your particular state/county allows as the fastest option.
Then, the state office is instructed to process your filing as an expedited filing. State processing time estimates vary by state, and not all states support expedited filings. When you fill out your incorporation package online, you will see if the expedited service is available in your state and what the state’s estimated processing times are.
Do you need help registering a corporation or have a question regarding the process? Call the CorpNet team today for a free business consultation at: 888.449.2638
