What Is a C Corporation and How Does It Work?
When starting a new business, it’s important to choose the right structure for your company. One popular option is a C Corporation. But what are they, exactly? Read on to learn more about C corporations, from a basic definition to their pros and cons.
Definition of a C Corporation
A C Corporation is a type of business structure in which the company is owned by shareholders who have limited liability for the company’s debts and obligations.
The corporation operates as a separate legal entity that can conduct business, own assets, and enter into contracts.
This means that the corporation can sue and be sued, enter into agreements, and pay taxes separately from its owners.
How a C Corporation Works
A C Corporation is managed by a board of directors who are elected by the shareholders.
The board of directors is responsible for making major business decisions, such as choosing the company’s officers, approving budgets, and setting corporate policies. The officers of the corporation, such as the CEO and CFO, are responsible for the day-to-day operations of the business.
C Corporations issue stock to shareholders, which represents their ownership in the business. Shareholders are not involved in the day-to-day operations of the business and do not have liability for the debts and obligations of the corporation.
Advantages of a C Corporation
One of the main advantages of a C Corporation is that it offers limited liability to its shareholders.
This means that the personal assets of the shareholders are protected from the corporation’s debts and obligations. Additionally, the corporation can raise capital by issuing stock to investors, which can help the business grow and expand.
Another advantage of a C Corporation is that it can deduct certain business expenses, such as salaries, benefits, and property taxes. This can help reduce the company’s tax liability and increase its profits.
Disadvantages of a C Corporation
One of the main disadvantages of a C Corporation is that it is subject to double taxation. This means that the corporation pays taxes on its profits, and then the shareholders pay taxes on any dividends they receive. This can result in a higher overall tax liability for the company and its shareholders.
Another disadvantage of a C Corporation is that it requires more formalities and paperwork than other business structures, such as a sole proprietorship or partnership. This can result in higher administrative costs and more time spent on compliance.
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