C Corporation Ownership: Everything You Need to Know
C corporation ownership has no restrictions. This means the business is open to many investors, allowing for ample growth. 3 min read
2. What Is a C Corporation?
3. Advantages of a C Corporation
4. How to Start a Corporation
C corporation ownership has no restrictions. This means the business is open to many investors, allowing for ample growth. The owners, also called the shareholders, of a C corporation (C corp) can be individuals or other business entities, and there is no limit to the number of shareholders allowed.
Are There Restrictions for Owning a C Corporation?
Ownership rules are more unrestricted for C corps than for other entity types when it comes to the stock types they can offer their owners. C Corps can have varied classes of stock, usually preferred or common, that allow for different levels of control in the company. An investor looking to be more involved in the company would purchase preferred stock, while someone just interested in adding to his or her stock portfolio might want common stock.
In contrast, S corporations (S corps) have quite a few restrictions on ownership. For example:
- S corps can only have up to 100 shareholders at a time.
- Shareholders of S corps have to be citizens and residents of the United States.
- Shareholders of S corps have to be individuals and cannot be business entities such as other corporations, LLCs, partnerships, etc.
S corporations can only offer one type of stock, so all the shareholders have the same level of influence in the company. This keeps S corps simpler than C corps. However, it also narrows the gate on potential investors.
The lack of restrictions on C corporation ownership also allows for easier buying and selling of stock, especially if company ownership needs to completely change hands.
What Is a C Corporation?
A C corporation is the most common type of corporation in the United States and is viewed by the IRS and under state law as a separate entity from its owners. In comparison, S corps and sole proprietorships are viewed as disregarded entities or the same as their owners under tax law.
Because C corps are viewed as their own entity, they can:
- Sell and own property
- Have employees
- Form contracts
C corps can also be sued. But because they are separate from their owners, the finances of the owners are protected even during a lawsuit against the company. Stockholders in a C corp can only be held liable for the amount of money they've put into the company.
Shareholders in a C corp elect a board of directors who manage the big business decisions and work to carry out the bylaws when certain events arise.
Advantages of a C Corporation
Depending on your vision for your company, a C corp structure could be the perfect fit. There are many benefits to a C corp business type, including:
- Limited liability protection
- Perpetual existence
- Unlimited stock sales
All shareholders, directors, officers, and employees in a C corporation are protected in the case of a lawsuit or if the corporation defaults on any loans. The legal or debt obligations are not the responsibility of any persons who are a part of the company.
Perpetual existence refers to the fact that the corporation can continue doing business even if the founding shareholders leave the company or die. Other entity types will be dissolved upon the loss of certain owners, but C corporations can continue to function.
Because C corporations have so many options for types of stock and who can own stock, the company has massive growth potential. More investors mean more funds for expansion and development. Investors can even come from foreign countries, allowing for growth on a global scale. If a C corporation decides to pursue a new direction or venture for the company, it can always sell more shares to gain the capital it needs.
How to Start a Corporation
Beginning a C corporation is fairly simple. Follow these basic steps:
- First, you'll need to decide on a name for your company. Make sure it is available for use in your state and then reserve the name, if you have that option, through the secretary of state (SOS) website.
- Write and file articles of organization (also called formation documents or articles of incorporation) with the SOS.
- Give stock certificates to the founding shareholders.
- Be sure to obtain all the necessary licenses or certifications required for your particular business type.
- Apply for an Employer Identification Number (EIN).
- Check with your state to make sure you've acquired all the necessary IDs and fulfilled any state-specific requirements.
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