C Corporation Shareholders: Everything You Need to Know
C corporation shareholders are basically the owners of the company. Any individual or business entity that owns stock in a C corporation (C corp) is a shareholder of that corporation.3 min read
Who Can Be a Shareholder in a C Corporation?
There are several structures a business owner can choose from for his or her company. C corporations offer a few advantages that other structure types do not, including:
- Unlimited options for stockholders
- Opportunity for global growth
- Continued operation through ownership and shareholder changes
- Some taxation benefits.
Other business structures, like S corporations, are only allowed a limited number of shareholders. C corporations can have any number of shareholders. This allows the company to open up its shares to an unlimited number of investors. More investors mean more funding, and that means more growth opportunities for the business. Shareholders can change or be added at any time during the life of the company, allowing for additional funds or expansion when needed.
The shareholders of a C corporation vote for a few members to be on a board of directors. This group will act as the sort of management team of the company, making big company decisions and carrying out company policies.
C corporation shareholders hold voting rights that can afford them quite a bit of power over the company and its livelihood. It's important for a corporation to have shareholders with an understanding of the business world and the right vision for the company.
Taxation of a C Corporation and Its Shareholders
One of the biggest ways a C corporation differs from the other business entity types, like LLCs and S Corps, is its taxation structure. A C corporation is viewed as an entirely separate entity from its shareholders. Therefore, it is taxed on its income. C corps are required to report their income on a Form 1120 with the IRS.
Shareholders in a C corporation are required to report any income they receive from the company in the form of dividends or salary to be taxed. This means the income of C corporations is subject to double taxation. However, the fact that the company is viewed as an entirely separate entity from its shareholders has other benefits that can outweigh this taxation issue.
C Corporation Shareholder Rights
C corp shareholders are offered different levels of stock, which can afford them varying levels of influence in the company. Two basic stock classes are:
- Common stock
- Preferred stock
Being able to offer an option for ownership to potential investors allows the corporation to cast a wider net for shareholders.
C corporation shareholders can be:
- Individual citizens of the United States or of foreign countries.
- Any other business entity type, including LLCs, S corps, partnerships, and others.
- Foreign companies.
There are no restrictions put on the types of shareholders allowed in a C corporation.
What is a C Corporation?
Simply put, a C corporation is a business entity type that offers massive growth while protecting the liabilities of any company shareholders or owners.
C corps are different from S corps, which are pass-through entities, and LLCs, which are treated as sole proprietorships. Small businesses automatically take on the form of a C corporation when they incorporate and have to elect specific tax status with the IRS to be treated otherwise.
C corporations are the basic type of corporations and are what most people think of when they hear the word corporation.
One of the main reasons business owners choose to form a C corporation is because of its treatment as a separate entity from its owners. This offers protection to the company shareholders in the event the corporation is sued.
Shareholders of a C corp can only be held responsible in the case of a company lawsuit up to the amount of their shares in the company. Therefore, they don't have to worry about their own personal property being at risk. This protection is called the corporate veil.
How to Form a C Corporation
The basic steps to form a C corporation are to:
- Choose and reserve a name for the company within the state you wish to conduct business.
- Create and file your articles of incorporation with your secretary of state (SOS).
- Issue stock certificates to any initial shareholders.
- File Form SS-4 for an EIN (Employer Identification Number)
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