A C corporation is a legal way business owners can organize themselves to be protected as a corporation but taxed as an individual entity. The profits pass through to owners but the owner's legal and financial obligations are limited.

Due to it being considered by tax laws as its own legal "person", a C corporation can create contracts and do other business, start lawsuits or be sued itself. It is also responsible for paying taxes.

Shareholders own a C corporation and must choose a board of directors who are responsible for making business choices and looking over policies. There may be any number of owners or shareholders and at some point they all must be registered with the Securities and Exchange Commission (SEC).

Most often a C corporation must make a report of its financial activity to the state attorney general. A C corporation still exists even if changes are made or death occurs in its shareholders.

If you eventually want an IPO (initial public offering), forming a C corporation may be a good idea. Often, angels, venture capitalists and other kinds of investors opt for a corporation over an LLC.

In a C corporation of a smaller scale with a minimal number of shareholders, individual business owner(s) usually have many roles at one time such as director, officer, and shareholder. Though stock is generally considered freely transferable, shareholders of a smaller C corporations usually make buy-sell agreements or other kinds of agreements.

To find out about the rules regarding how to manage the corporation's business matters, it is easiest to read the Corporate bylaws . Corporate bylaws give information on topics such as date, place, and notice of shareholder's and director's meetings, committees of directors, locations for office, and the abilities, responsibilities, and skills required of directors and officers.

Formalities of a C Corporation

  • Money invested in the corporation
  • Proper issuing of stocks to the initial shareholders
  • Consistent meetings held between directors, and the shareholders
  • Maintaining, and updating business records and transactions of a corporation separately from those of its owners

Expectations for a C Corporation

  • At least one meeting per year for both shareholders and directors
  • Records of meetings must be maintained to clearly show how the business runs
  • Records must be kept of the voting for the company's directors
  • List of owner's names and percentages of ownership must be kept
  • Company bylaws kept on the property of initial business location

Advantages of a C Corporation

  • Less risk of being audited by the government
  • Liabilities concerning business debts for owners and shareholders is limited
  • Can treat the cost of benefit, such as health plans for workers, as a business expense. Also,  there is no tax on benefits for those being given them
  • Can divide the corporate earnings among the corporation and its owners
  • Amount of stockholders is not limited. This enables the selling of shares to an extensive number of investors, thus allowing more money to be gained for projects
  • Corporation may raise more funds by selling stocks should the company require money to expand
  • The right of foreign nationals to invest in or own a C corporation allowing for more external money to come in
  • Owner or majority share holder has the choice of giving a variety of stocks to a variety of shareholders. This brings a bigger range of investors to the table since different kinds of stocks are preferable to different investors

When the C Corporation Cannot Protect the Owner from Liability

  • Owner is responsible for the injury of another person
  • Owner has promised to pay corporation's business debt or loan and the corporation does not repay.
  • Owner does not submit taxes corporation takes from the earnings of the employees
  • Owner is involved in an illegal action such as fraud that causes corporation or someone else to suffer a loss
  •  Owner uses the corporation like it is their personal property instead of something separate
  • The courts deem a corporation to no longer be, as the requirements of a corporation have not been properly followed

A C corporation can be an advantageous business set up. It provides limited liabilities for business owner/s, permits tax breaks, allows more freedom of stock purchasing, and other benefits. If you are interested in finding more information in regards to a C corporation, post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.