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c corporation meaning

A common variant of LLCs is the Professional Limited Liability Company composed of licensed professionals organized to provide a service. The usual PLLCs are composed of doctors, lawyers, architects, accountants, and engineers, though any group of licensed professionals can form one. In PLCC, the limitations on malpractice suits present in LLCs are eliminated. Some states, such as Texas and California, only allow professionals c corporation meaning to use the PLLC structure instead of the regular LLC. A C Corp is one of the ways to structure a business for tax, regulatory, and other legal purposes . As for changing your C corp into another business model, you may need to speak with a business attorney for more information and steps. This includes preparing and creating financial documents, maintaining financial records, and handling tax responsibilities.

c corporation meaning

A C corporation is preferred compared to other forms of business for high income/high tax bracket owners. However, a C corporation has disadvantages as well, such as double taxation, high expense to start, and complex regulations and formalities. A C corporation can be contrasted with an S corporation, a corporation with 100 shareholders or less, which may pass income to the shareholders without paying taxes at the corporate level. While other structures require shareholders to pay taxes only on profits they get, C corp may be subject to double taxation as profits must be paid by both the firm and the shareholders. Make sure owners aren’t personally operating the business and follow legal formalities like taking meeting minutes to retain liability protection for shareholders. Have positions available, including one for treasurer and secretary, to keep corporation responsibilities separate.

C-Corp Management Structure

These officers run the day-to-day operations of the corporation. They can issue stock, elect officers, and make major business decisions. An S corp meets IRS rules to be taxed under Chapter 1, Subchapter S of the Internal Revenue Code. All C corporations must file Form SS-4 to obtain an employer identification number .

C corporations may be distinguished from other types of business organizations like S corporations and sole proprietorships. While a corporation is legally separate from its owner, a sole proprietorship is a business composed of and legally synonymous with the single individual who owns it.

C Corporation Ownership and Structure

She is a graduate of Bryn Mawr College (A.B., history) and has an MFA in creative nonfiction from Bennington College. Some states, such as California, New York, and Texas, are now charging a “franchise” or “margin” fee on LLCs. The amount to be paid can be based on revenue, profits, amount of capital invested, the number of owners, or some combination thereof, although a flat fee is also used, for example, in Delaware . One of the most significant differences between forming C Corps and S Corps/LLCs is how income is taxed.

  • In PLCC, the limitations on malpractice suits present in LLCs are eliminated.
  • A number of C-Corps don’t pay any corporate taxes because the owners are also employees, so their salaries and bonuses can be deducted as a business expense.
  • C-corps, like all corporations, must follow operating rules called “corporate formalities” in order to maintain corporate protections.
  • C Corporationmeans, with respect to any taxable year, a corporation which is not an S corporation for such year.
  • This report must include information on the corporation’s finances and activities over the past year.
  • Although double taxation is an unfavorable outcome, the ability to reinvest profits in the company at a lower corporate tax rate is an advantage.

Unless your business is very low risk and has little chance of being sued by a customer or vendor, you will want to register as a legal entity—an LLC or corporation. Do this before you start your business so your personal assets are protected. The directors set a vision for the corporation https://www.bookstime.com/ and are responsible for the management of the corporation. The officers and managers hired by the directors are responsible with carrying out the vision on a day-to-day basis. State laws require c corps to hold annual meetings of shareholders and directors and record meeting minutes.