Corporation Frequently Asked Questions

A C corporation is a business structure that provides limited liability protection from its owners, called shareholder(s). By default, this business structure is subject to double taxation (the C corporation pays income taxes and the shareholder(s) also pay taxes on the dividends received). However, for tax purposes, a C corporation may elect to be treated as an S corporation and “pass through” income or losses to the shareholders, avoiding double taxation. C corporations have more operational requirements than LLCs, such as the recording of meeting minutes.  Selecting the C corporation business structure can be a good choice for businesses that need to raise capital through the sale of stock or a business that the shareholder(s) plan on taking public. 

(Note: Meeting minutes are written documentation of discussions that took place during a meeting such as the names of the attendees, agenda, decision(s) made and follow up actions.) 

Regardless of the type of business structure you select, there are other considerations you’ll need to make while filing which include:

1. Is the default tax structure appropriate for your C corporation or should a S corporation election be made?
2. Do you need an Employer Identification Number (EIN)?
3. Who will serve as your company’s Registered Agent?

Taxation: By default, a C corporation is subject to double taxation where the profit of the C corporation is taxed (and the taxes are paid by the C corporation) and then the shareholders are taxed when profits are distributed to the shareholders as dividends. Similar to an LLC, a C corporation can elect to be treated as an S corporation.

In contrast, an LLC has even greater flexibility in regards to how it is treated for tax purposes. By default, an LLC is considered a “disregarded entity” by the IRS and is taxed like a sole proprietorship if the LLC has a single member (owner) or a partnership if the LLC has two or more members (owners). Additionally, an LLC can also choose to be taxed as an S corporation or a C corporation.

Record Keeping: In general, C corporations are subject to more regulations and requirements than LLCs. Unlike LLCs, a C corporation is usually required to hold a shareholder meeting each year as well as keep records of meeting minutes. 

Note: Meeting minutes are written documentation of discussions that took place during a meeting such as the names of the attendees, agenda, decision(s) made and follow up actions.

Management: C corporations must have a board of directors who are responsible for establishing policies and overseeing the business. In addition, the C corporation’s daily decision making is performed by the corporation’s officers. In a small business, it is common for one or two people to be the directors, officers and the shareholders of the corporation. The shareholders of the C corporation are the owners.

By default, a C corporation is subject to double taxation (the C corporation pays taxes and the shareholder(s) also pay taxes on the dividends received). A C corporation can also choose to be taxed as an S-Corporation if it meets certain requirements (discussed below).

Above, we noted that the default tax treatment of a C corporation is to be taxed as a corporation and thus subject to double taxation. A C corporation also has the option to be treated as an S corporation for tax purposes.  The legal entity will still be a C corporation but the tax structure will be a S corporation. Electing to be treated as an S-Corporation for tax purposes is generally a tax savings strategy that should be put in place only after consulting with a competent tax accountant. In general, an S corporation will pay less taxes than a C corporation. You can make this election up to 75 days after you incorporate your C corporation. Additionally, you can operate as a C corporation with the tax structure of a corporation (subject to double taxation) and make the S corporation election in a future tax year. To qualify for S corporation status, the corporation must meet the following requirements:

• Be a domestic corporation (a corporation that conducts its affairs in the U.S.A.)
• Have only allowable shareholders
  • May be individuals, certain trusts, and estates and
  • May not be partnerships, corporations or non-resident alien shareholders (shareholders must be U.S. citizens or resident aliens)
• Have no more than 100 shareholders
• Have only one class of stock
• Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations are ineligible).

An EIN is a 9 digit number assigned by the IRS and is required to be able to identify the tax account of employers and others who do not have employees. The EIN number is a requirement to establish a bank account for your business. Applying for an EIN is a different process than registering your business with the state. Our partner’s services include the option to have us apply for an EIN and communicate with the IRS  on your company’s behalf.

Each business that is formed within the state is required to elect a registered agent (RA). An RA is the person or business entity that will accept service of process (lawsuit) notices, correspondence from the Secretary of State and other notifications – such as tax forms. You’ll need our partners to serve as your RA if you do not have a physical address (i.e. a PO Box), are not available every day during normal business hours (away on vacations, business trips, etc.) or simply want to avoid falling out of “good standing” with the State and risk penalties such as fines or revocations.

Your corporation must file an Annual Report with your state’s Division of Corporations each year to maintain an active status. The corporation’s first annual report is typically due between January 1^st and May 1^st of the calendar year following the year the corporation is formed. Our partners can make sure your business files its Annual Report each year avoiding late fees which can be upward of $400. They can also perform other maintenance such as reinstatements, dissolutions, and registered agent changes.

The owners of a corporation are called shareholders. The shareholders have the right to elect who the directors of the corporation are as well as share in the profits of the corporation by way of dividends.

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