Tax Account Pro / C Crop
A-C corporation (or C-corp) is a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity. C corporations, the most widespread of corporations, are also subject to corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, creating a double taxation situation. A c corporation (also known as a “C Corp”) is a legal entity that protects the owners’ personal assets from creditors. It can have an unlimited number of owners and multiple classes of stock.
C corporations provide the following considerable advantages:
Separate legal identity
Limited liability for the owners
The separation between ownership and management
No restrictions on who can hold shares
Readily transferable shares
Well-established legal precedents
Widespread acceptance by the venture capitalists and other investors
Ability to offer stock options
Tax planning opportunities
What can these C corporation advantages mean to your business?
A firm is distinct from Its owners –
Once formed, a firm has a life of its own, with its rights, capabilities, responsibilities, and liabilities. This means that a corporation can sue (or be sued) in its name. It can buy, own, and use its own real or personal property, make its contracts and guarantees, lend money, and invest funds.
A corporation offers owners limited liability protection –
Because a corporation is a separate entity, its debts, obligations, and liabilities are it’s own. Those who do business with a corporation must look to the company to satisfy any obligations owed to them, and not to the shareholders. The shareholders’ exposure to loss is limited to the amount invested in the corporation.
How C Corporations Work
Corporations pay corporate taxes on earnings before distributing the remaining amounts to the shareholders in the form of dividends. Individual shareholders are then subject to personal income taxes on the dividends they receive. Although double taxation is an unfavorable outcome, the ability to reinvest profits in the company at a lower corporate tax rate is an advantage.