What is a C Corporation?

UPDATED: Jul 18, 2023Fact Checked

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Jeffrey Johnson

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 18, 2023

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UPDATED: Jul 18, 2023Fact Checked

A C corporation is a business that has a distinctly separate identity from its owners. Because it is not an S corporation, sometimes a C corporation is referred to as an ordinary corporation. The owners are shareholders rather than partners or proprietors. While a corporation takes more time and effort to organize than other business entities, the key benefit is that the business owners and their assets are protected from liability for business debts and court judgments; their personal bank accounts cannot be used to pay the coprorate bills. As a separate entity, a C corporation can own property, make business deals, or even sue another business independently of the shareholders. There is no limit on the number of shareholders, and shareholders can be foreign citizens.

The process of forming a corporation requires several steps. First, the owners must decide whether to make the C corporation public. This means shares are offered for sale to the public. It can also be privately held. In this case shares are held by the founders, board members or private investors. Whether public or private, a C corporation must have annual shareholder meetings. Minutes of those meetings must be recorded. Separate income taxes are filed and corporate taxes are paid regularly for the business.

Because most corporate law is state law, formalities and regulations must be followed very closely in conjunction with the laws regarding incorporating in a specific state. Failure to do so can create a situation where shareholders may be held liable. Following these regulations can be time consuming and costly.

Another disadvantage of C corporations is “double taxation.” This occurs because the corporation is taxed on its profits, and shareholders are also taxed on the distributions they receive, such as profit sharing payments or dividends.

Among the advantages are liability protection for the owners and shareholders, income from profits and share dividends, and the ability to have a business identity separate from the individual owners. When deciding to form a C corporation, it is important to weigh these advantages and benefits against the disadvantages.

Case Studies: Understanding C Corporations

Case Study 1: Liability Protection and Business Identity

Alpha Bravo Charlie Corp is a C corporation with multiple shareholders. The corporation successfully secured a major contract, but unfortunately, a lawsuit was filed against the company due to a contractual dispute. Thanks to the C corporation’s separate legal identity, the shareholders’ personal assets remained protected from any potential judgment or debt incurred by the company. Additionally, the business identity of Alpha Bravo Charlie Corp allowed it to operate independently, shielding its shareholders from any direct legal action.

Case Study 2: Double Taxation Impact

X-ray Yankee Zulu Corp is a privately-held C corporation with significant profits. At the end of the fiscal year, the corporation declared a substantial dividend payout to its shareholders. However, the shareholders were concerned about the impact of double taxation—both the corporation and the individual shareholders would be taxed on the dividends. The shareholders sought professional advice and explored alternative structures to mitigate the double taxation impact while maintaining the benefits of a C corporation.

Case Study 3: Compliance and Formalities

Delta Echo Foxtrot Inc is a publicly-traded C corporation, and it has to adhere to strict compliance and formalities mandated by the state and federal laws. The corporation faced challenges in maintaining proper records of annual shareholder meetings and documenting the minutes of these meetings accurately. Failure to comply with these regulations could lead to potential liability issues for the shareholders.

Delta Echo Foxtrot Inc decided to seek legal assistance and implemented a robust compliance strategy to avoid any legal repercussions and safeguard the interests of its shareholders.

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Jeffrey Johnson

Insurance Lawyer

Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

Insurance Lawyer

Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.

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