C Corporation

A C corporation is a standard state-formed corporation. It is a legal entity once it is formed, so it files its own taxes and is responsible for its own dealings.

When a Company is incorporated, it is normally incorporated as a C Corporation. Basically, a C corporation is a separate legal entity that is formed as a for-profit corporation. There are a certain number of shares issued at incorporation and directors and officers are designated. The corporation, being a separate entity, pays applicable to taxes to both the state and federal government. It can have unlimited number of shareholders. The shareholders can be any kind of legal entity including foreigners.

C Corporations are the most common corporate structure. It is the most expensive kind of business to begin and maintain. They require significant annual filing fees. It readily communicates prestige and credibility to customers, suppliers, and business associates. A C Corporation has its own identity, separate from its founders and the shareholders and has the flexibility to grow beyond that of its founders or managers. The shareholders of a C Corporation are personally liable for the debts and liabilities of the Corporation only to the extent of the value of their shares. Although the shareholders are the owners of the C Corporation, a shareholder cannot bind other shareholders of the firm by their actions solely as a shareholder.

The bylaws of the C Corporation which set forth the management procedures and rules are ratified by the shareholders. The shareholders of the corporation meet at least once a year, to elect a board of directors who are responsible for managing the business and affairs of the corporation. Shareholders who hold a majority of the shares have ultimate control over the corporation. Officers and executives appointed by the corporation are responsible for managing the day to day affairs of the corporation.

The corporate management style is very flexible. The larger the corporation is, the more control rests in the hands of top management. There is great flexibility also in the transfer of ownership. The shares can be easily transferred without effecting the operations of the corporation. However there can be certain limits on the transferability of shares including restrictive rights on ownership interests, such as right of first refusal, options, and buy-sell agreements. Sometimes if the corporations want to offer differing interests in voting rights, distribution rights, and liquidation preferences, they issue more than one class of stock.

A disadvantage of C Corporation is the observance of corporate formalities, such as creating a board of directors, having annual shareholder meetings, and adhering to state and federal reporting standards. Strict record keeping requirements are enforced upon the C Corporations by Federal and State laws.

The earnings of a C Corporation remain within the corporation until paid out. Profits are distributed to shareholders as dividends or through redemption of shares, or the repurchase of shares by the corporation. Dividends are declared at the discretion of the board of directors. Each shareholder's share in profits is proportionate to the numbers of shares held by the shareholder. Profits are taxes when earned and again when they are distributed to the shareholders as dividends.

State statutes and procedures govern the formation of C-Corps. To begin with, a name which complies with the incorporating state's rules must be selected. The initial directors are then appointed and then the Articles of Incorporation are filed with the appropriate state agency along with the filing fee which varies from state to state. The bylaws which provide the operating rules of the corporation are then made. The first meeting of the board of directors is then held and stock certificates are issued to the initial owners/stockholders. Licenses and permits depending upon the nature of the business of the corporation are required to be obtained. Licenses and permits required for the business vary from state to state.