What to Consider Before Forming a C Corp in Los Angeles
Starting a business is an exciting project that requires focus, dedication, and understanding of the legalities that accompany it3 min read
Starting a business is an exciting project that requires focus, dedication, and understanding of the legalities that accompany it. If you are looking into setting up a C Corporation in the Los Angeles area, there are five key points you should know before making any final decisions. Here is a look at the top five things you should consider before forming a C Corp in LA.
1. The Different Taxes Involved
In the context of a C Corp, there are two separate taxes that you will need to be aware of: the corporate income tax and the shareholder taxes. The corporate income tax applies to any business net profits that your C Corp takes in, and it is taxed at the corporate level. Here in the US, the corporate income tax is typically compiled with the IRS on Form 1120.
Additionally, the shareholders of the C Corp will be required to pay taxes on the dividends they receive from the corporation. Dividend taxation rates can depend on the amount of income realized by the shareholders. As such, a C Corp can be a fairly attractive structure depending on the amount of income that the shareholders are taking in.
2. Limited Liability Protection
One of the main benefits of forming a C Corp is that it provides limited liability protection to the shareholders. This means that should the corporation face any financial liabilities, the shareholders will not be held responsible. Consequently, the shareholders of a C Corporation cannot be held individually liable for the debts and obligations of the corporation. If a C Corp is unable to fulfill its obligations, the creditors typically cannot turn to the shareholders of the corporation for payment.
3. The Separation Between Ownership and Control
When it comes to a C Corp, there is a distinct division between ownership and control. This separation is a beneficial feature of a C Corporation as it provides the owners of the company with the ability to manage their business interests without having to worry about the interests of the shareholders. As such, the shareholders can focus on their returns while the owners can focus on the business itself.
4. The Weight of the Corporate Formalities
A C Corp is required to follow certain corporate formalities to remain in compliance with the applicable corporation laws. These formalities include creating and maintaining company bylaws, holding annual meetings for shareholders and directors, holding elections for directors, and, of course, filing periodic reports with the appropriate state and federal agencies.
Additionally, the ownership interests of the C Corp must be clearly defined in the articles of incorporation and transferred according to the rules set forth in the bylaws. Failure to abide by the corporate formalities may result in piercing of the corporate veil and potential liability to the shareholders.
5. Legal Support
Lastly, it is important to have a qualified attorney who has expertise in forming C Corps in the area you are located in. It is critical that you have all the necessary paperwork and documents in order before you formally register with the proper authorities.
Given the complexities of setting up a C Corp, having an experienced and knowledgeable attorney guide you through the process will ensure that you are compliant with the applicable laws and regulations. This is especially true in the area of Los Angeles, where the local regulations may differ from those in other cities or states.
Forming a C Corp can be a great way to structure your business and provide the limited liability protection and other benefits it offers. However, understanding the five components mentioned in this article is essential to doing so successfully. Being aware of the taxes, the separation of ownership and control, the corporate formalities, and the need for legal counseling will help ensure that you are on the right track as you set up your C Corp in Los Angeles.
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