| |
|
|
ENTREPRENEUR RESOURCE CENTER
Business Legal Structure: C-Corporation
A C-corporation is an entity apart from its owners and may engage in business, issue contracts, sue and be sued and pay taxes. When a corporation is founded, it accepts the regulations and restrictions of the state in which it is incorporated . A corporation doing a business in the state in which it is incorporated is called a domestic corporation. When it operates on another state it becomes a foreign corporation. Alien corporation is an overseas corporation that does business in the United States. Generally a corporation must report its financial operations to its state attorney general.
The advantages of a C-Corporation:
• |
Limited liability of stockholders. The corporation allows the investors to limit their liability to the total amount of their investment. In start-up companies, because of the high risk, the investors and creditors often ask for personal guarantees for the loans. |
• |
Ability to attract capital from creditors. This is the most effective form of ownership to accumulate large amounts of capital. |
• |
Additional capital can be raised by selling stock. |
• |
Transferable ownership. No restriction to sell the shares and can be inherited to others. |
• |
Skills, expertise, and knowledge. With large resources, corporations can draw upon the skills of its officers and directors to help the company. |
• |
Ability to continue indefinitely. Corporations can exist indefinitely and will not depend on any single individual. |
• |
No limitations on shareholders. It can have unlimited number of shareholders: individuals, other corporations, trusts, estates and foreign investors. |
• |
Options to issue different classes of stock to different shareholders. |
The disadvantages of a C-Corporation:
• |
The cost and time involved in the incorporation process is really high. In some cases, you must involve an attorney to incorporate your business. |
• |
Liability of closely held corporate owners. Corporations offer limited liability to the owners which means that the owners can not be sued for the debts of the business unless they personally guarantee those debts. |
• |
Double taxation. The corporate income is taxed by the federal, state, and local government. Then corporate shareholders must pay taxes on the dividends they receive from the same profits. This is the major disadvantage of corporations. |
For questions regarding taxes for a corporation and the tax forms necessary, please refer to:
|
|
