Once you have an idea for a business, there are many important steps to take before you can officially open your doors. Deciding which type of corporate set up is right for you is one of the first, and perhaps most important, steps.
The Internal Revenue Code allows for two different levels of corporate tax treatment. Subchapters C and S of the code define the rules for applying corporate taxes. Subchapter C corporations include most large, publicly-held businesses. These corporations face double taxation on their profits if they pay dividends. C corporations file their own tax returns and pay taxes on profits before paying dividends to shareholders, which are subsequently taxed on the shareholders' individual returns. To help you learn more about this type of corporation, we want to share with you a few things to know when choosing to form a C Corporation.
First, it is important to understand that a C Corporation has limited liability. This means that the liabilities of the corporation are separate from those of the shareholders. Typically, the owners of a C Corporation are not held liable for the corporation’s actions. This does not apply across the board, however, and if certain rules are not followed, the owners may find themselves liable. Your business law attorney can discuss both the ramifications and significance of this type of corporate structure with regard to liabilities.
Next, the ownership of a C Corporation can be transferred. The “owners” of a C Corporation are those who hold the corporation’s stocks and actually exist separate from the corporation itself. C Corporations are typically larger businesses who are intended to publicly trade shares. Incorporating as a C Corporation generally suggests that you expect to significantly grow your business over time.
There are some disadvantages, however, to setting up a structured C Corporation. This type of corporation has a different tax structure than a Limited Liability Company (LLC) or an S Corporation, as investors are taxed double when they receive dividends. There are also stricter regulations that must be met when creating and maintaining a C Corporation that other businesses do not have to follow. Discussing your business plans with an experienced business law attorney can help you better understand the laws and regulations you must comply with when setting up a C Corporation.
These are just some of the factors you should consider when choosing to form a C Corporation. Never undervalue the advice of an attorney on this, or any business matter. If you have questions or are in need of further guidance for your business, do not wait to reach out to us.