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Choosing to Incorporate as a C Corporation

The "C" corporation is considered the "standard" business corporation. It is called a "C" corporation because it is covered by the requirements of Chapter C of the Internal Revenue Service code. In comparison to LLCs, S corporations and other business entities, the C corporation must comply with the greatest number of reporting formalities. That means there can be a lot of paperwork involved.

But there also are significant benefits to forming as a C corp.

What Are the Benefits of Incorporating As a C Corporation?

There are numerous benefits that accrue to those who choose the C corp as their business entity. These include:

  • Limited personal liability for business debts: Creditors are restricted from coming after the owners of the corporation to collect monies owed. Owners' personal assets are protected from attachment or seizure to pay the company's debts.

  • Fringe benefits deductible as business expenses: Benefits provided to employees - such as medical and group term life insurance - can be deducted by the corporation as a business expense.

  • No dissolution in case of change in ownership or death of the owner: A corporation is considered an individual entity which can be sued, taxed and enter into contracts with others. The C corp is owned by its shareholders, who elect a board of directors to set and oversee policy and major business decisions. When ownership changes, the corporation is not dissolved.

  • Numerous stock advantages: Lower tax rates apply for splitting any corporate profits between or among owners and the corporation, and reinvestment of profits in the business. Corporations can raise funds through sale of stock. No limit on how many people can become stockholders. Preferred stock can be issued.

  • Foreign nationals can own or invest in a C corp - you don't need to be a US citizen.
  • What Are the Negatives of Becoming a C Corporation?

    There also are detriments when you choose to form a C corporation:

  • Double taxation is a risk. The business pays taxes on its profits and owners, employees and contractors to the corporation pay taxes on their wages or fees earned (as opposed to an LLC, which pays no taxes as an entity, but rather passes profits through to its principals).

  • Stockholders - including owners - in the corporation who receive dividends must include these on their personal tax returns.

  • If the corporation loses money, owners can't take advantage of these on their personal tax returns like people who owns S corporations, partnerships and LLCs can.
  • What Documents Do I Need to Form A Corporation?

    There are numerous documents and formalities needed to set up a corporation and put it into motion. Some of the documents are:

  • Articles of Incorporation

  • Bylaws

  • Organizational board resolutions

  • Stock certificates

  • Stock Ledger
  • In What State Should I Incorporate?

    There are several states in particular that are "corporation friendly." Of these, it is Delaware and Nevada that are at the top of everyone's lists. Delaware boasts half a million corporations that make their home in the state, mostly because of its forward- looking and flexible business formation statutes, and its Court of Chancery, which is a special business court that is very business friendly.

    In Nevada, there is no corporate income tax, no taxes on corporate shares, no franchise tax or personal income tax. And, among numerous other benefits, the state doesn't share information with the IRS.

    The other states that are considered preferable are Arizona, California, Florida and New York.

    Should I Incorporate As a C Corporation On My Own?

    There are so many formalities and filing requirements involved in forming a C corporation, it is usually wise to seek the help of legal counsel or at least a firm that does incorporations for a living. There are lawyers in all 50 states who specialize in corporate law, and companies whose sole purpose is to help individuals and groups form the business entity of their choosing (S corps, C corps, LLCs, partnerships, sole proprietorships, etc.) and they aren't hard to find.

  • Ask your own attorney (if you have one) to take care of incorporating for you, or refer you to a corporate specialist with whom s/he has done business before.
  • Check with your friends and colleagues: Remember, every C corporation had to get started somewhere. Ask other firms who they used to help them do the paperwork, and whether they are satisfied with the firm they chose.

  • Log on to the Internet and search the term "incorporation services" or simply "incorporation". There literally are thousands of services from which to pick.

  • Call or query your state's bar association. They will be able to tell you who within their borders practices corporate law and can help you incorporate as a C corporation.

    Want more information about registering a company? Visit our Guide. Check out incorporation fees by each state.

    Tip: Did you know that Delaware and Nevada are top two incorporation states?

    Ready to register a company? Choose one of these great online incorporators:

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