New York C Corporation: Everything You Need to Know
A New York C corporation is a separate legal entity that is independent from its owners.3 min read
A New York C corporation is a separate legal entity that is independent from its owners. Corporations have many of the same rights and responsibilities that an individual possesses. For example, a corporation has the right to loan and borrow money, enter into contracts, hire employees, own assets and pay taxes, and to sue and be sued.
Registering a Corporation in New York
Becoming a corporation can be complicated. Many small business owners decide to hire a lawyer to get through the process. In order to incorporate, owners must:
- File a Certificate of Incorporation with the Department of State.
- Create bylaws.
- Report taxes and other employee information.
- Request a Federal Employer Identification Number from the Internal Revenue Service (IRS).
- Apply for business permits and licenses.
- Submit your entity's first report.
- Pay all incorporation fees.
Who Can Form a Professional Service Corporation in New York?
A Professional Service Corporation (PSC) may only be organized by individuals who are in a profession that is licensed by the state of New York. A personal service corporation (PSC) is a specific taxpaying entity recognized by the IRS. These professions include:
How Is a New York C Corporation Taxed?
Shareholders that have invested in a C corporation will be subject to double taxation because they will pay taxes as both a stockholder and as an individual. The main advantage of an S corporation is the pass-through taxation that a shareholder receives. To be more specific, the income generated from the business is passed onto the stockholder instead of being taxed at both the corporate and personal level, like with a C corporation. In other words, S corporations in the state of New York will pay no federal income tax at the business level and are not exposed to double taxation. However, they must file Form CT-6 with the New York Tax Department.
Employer Identification Number (EIN)
After forming a company, it's important to contact the IRS in order to receive an Employer Identification Number (EIN), or Federal Tax Identification Number. An EIN is required to complete state and federal income tax returns. It may also be needed to open up a business bank account.
How to Dissolve a New York Corporation?
A certificate of dissolution must be filed with the New York Department of State in order to dissolve a New York corporation. It must be accompanied with a written consent form from the New York State Department of Taxation and Finance. In cases where the corporation has worked with and incurred tax liability with the City of New York, a Consent of the New York City Commissioner of Finance form must also be attached.
What Are the Differences Between a C Corporation and an S Corporation?
One of the key advantages of a C corporation is that it can have an unlimited number of shareholders. Businesses that anticipate hundreds or thousands of shareholders will want to form a C corporation. For example, publicly traded companies are usually C corporations.
C corporations may also deduct the cost of fringe benefits they provide for employees, such as health and disability insurance. Stockholders in a C corporation are not required to pay tax on the fringe benefits received, as long as 70 percent of the corporation also receives the same benefits. It's quite easy for a C corporation to raise capital because they're able to issue an unlimited number of shares across multiple classes of stock. Also, investors have limited liability for the actions of the business.
S corporations are entities that elect to pass corporate income, losses, credits, and deductions through to their stockholders for federal tax purposes. The main disadvantage of an S corporation is that it's not allowed to have more than 100 stockholders. Shareholders in both S and C corporations are required to pay personal income tax on the following transactions:
- Dividends paid.
- Salary received.
- Earnings distributed.
Who Is Exempt From Paying General Corporation Tax in New York?
In New York, the corporations below are exempt from paying general corporation tax:
- Not-for-profits that are allowed exemption status from the New York City Department of Finance.
- Insurance corporations.
- Corporations formed in order to pursue title to property as outlined in Section 501(c) (2) or (25) of the IRS code.
- Corporations exposed to the utility tax or New York City Banking Corporation Tax.
- Exemptions do not apply to vendors of utility services
- Dormant corporations
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