Do you want to register a C Corporation but you don’t know the requirements? If YES, here are 10-step guide on how to start a C Corporation with little money. C corporations are complex business entities that have chosen to incorporate under Subchapter C of Chapter 1 of the Internal Revenue Code.
Table of Content
- What is a Corporation?
- Limited Liability
- Tax Benefits
- No Pass-Through Entity
- a. Complexity
- b. Double Taxation
- 1. Conduct Your Research
- 2. Choose a legal name
- 3. Lease or Rent an Office Facility
- 4. Set up The Structure and Appoint Directors
- 5. Draft your articles of incorporation
- 6. Issue stock certificate
- 7. Apply for the necessary licenses and permits
- 8. File for SS-4
- 9. Get other ID numbers
- 10. Meet with Your Partners / Stakeholder and Create Bylaws for Your Corporation
- Do I need an attorney to form a C Corporation?
- Are paperwork required?
- What should I name my corporation?
- What is the C Corporation’s business structure?
- Where should I incorporate my business?
What is a Corporation?
A C corporation is recognized as a distinct legal entity, and it is owned by its shareholders. The corporate structure protects individual shareholders from personal liability arising out of the business. A C corporation is governed by the laws of the state in which it filed articles of incorporation.
Truth be told, establishing a C corporation is no walk in the park. It is a lot more complicated than forming a Sole Proprietorship or a Limited Liability Company. But regardless of its initial difficulty in setting up, it has a lot of benefit such as the several tax benefits that your company could enjoy.
The C Corporation is the most common type of corporation in the united states of America and it is easy to see why. C corporations (c corps) offer unlimited growth potential through the sale of stocks, which means you can attract some very wealthy investors. In addition, there is no limit to the number of shareholders a C Corp can have. Also, there is no restriction as to who is allowed to form a C Corporation. There is no age limit (though some states do require directors of a corporation to be over 18), residency or other legal requirements.
Advantages of a C Corporation
People who own C corporations cannot be held responsible for the companies’ losses or the debts incurred. Their investments in the company are their only financial risk.
There are a plethora of tax benefits that are available for this type of company. Depending on your business income, creating a C Corporation could lower your tax rate.
No Pass-Through Entity
A C Corporation is the only business structure that is not a pass-through entity. This means that your net income will be taxed at the level before it is distributed to the owners or shareholders, who must also pay tax on the income.
With a C Corporation a company can have shareholders, and can also take the company public if they wish. Furthermore, you can also issue stock or stock options to employees.
A C Corporation can have a very long life span because the board carries on the company, not the owner. That means that a corporation can last longer than an owner-based company such as an LLC.
Disadvantages of a C Corporation
Just like it was mentioned before, a C Corporation can be quite complicated tax-wise and is a lot more difficult to create when compared to Limited Liability Company or a sole proprietorship. You will certainly need financial, tax and business advisers to set up and maintain a C Corporation.
b. Double Taxation
In the event that you may want to issue dividends to shareholders from your corporation’s profits, the corporation will have to pay taxes on the profits and your shareholders will pay personal taxes on the dividends.
If your shareholders are employees, you might be able to tax-shelter additional profits by providing better benefits such as dental and eye care in addition to standard health insurance. You can also raise salaries and give bonuses, which the company can take as deductions.
c. The potential for unlimited growth is not without its peculiar problems such as;
Expensive to start
There are a lot of fees that come with filing the Articles of Incorporation. And corporations pay fees to the state in which they operate.
Regulations and formalities
C Corporations experience more government oversight than other companies due to complex tax rules and the protection provided to owners from being responsible for debts, lawsuits, and other financial obligations.
No deduction of corporate losses
Unlike an s corporation (s corp), shareholders can’t deduct losses on their personal tax returns.
10 Easy Steps on How to Register and Start a C Corporation
A C Corporation is established with state authorities and must abide by corporate laws in the state where it is incorporated. Experts recommend that small-business owners establish corporations in their home states. Check which agency handles this in your state. The secretary of state’s office often registers corporations.
To form a C Corporation, you will need to register your business name, file a certificate of incorporation or articles of incorporation and pay a fee. You will also need to draft corporate bylaws and hold a board of director’s meeting. Here are the steps involved in setting up a C Corporation in the United States of America.
1. Conduct Your Research
There are a lot you stand to gain if you first take out time to research on the industry or type of business you intend starting. S,o before starting your corporation, it is to your advantage to read up all you could about corporation, how they are set up, how to operate, how to expand, how they source for initial investors and directors and all it will take to incorporate a corporation in your country or state.
2. Choose a legal name
Another important step towards forming a C Corporation is to choose a legal name for your business and reserve the name if the Secretary of State in your state offers that service. You should note that it is not every state in the country that accepts reservation of names, and those that do usually charge a fee for the service.
Generally, the Secretary of State will hold the name only a short time, such as 30 days, while you prepare your articles of incorporation. If you are not able to file your articles within that time frame, the name will be released back to the public pool and another company can register it.
One thing that is common to the name of a corporation all over the world is that the name must end with a Corporation (Corp.), Incorporated (Inc.) or Limited (Ltd.). Of course you would be required to do a name search to be sure that you are not going to be sharing same name with another corporation in your country.
3. Lease or Rent an Office Facility
One of the requirements that you must fulfill before your corporation can be registered with the secretary of your state or the corporate affairs commissions of your country is that you must have a physical address for your business. So, what is expected of you to do before approaching the corporate affairs commissions to register your corporation is to ensure that you lease or rent an office facility; a facility that you can run your business from. You might want to consider a facility that is in a nice location for the type of business that you intend starting.
4. Set up The Structure and Appoint Directors
Depending on the picture you have in mind, you and your business partners can appoint just one director or group of directors. Directors are responsible for making major business policy for the organization. They are also responsible for making financial decisions for corporations and also they are responsible for authorizing the issuance of stock. As a matter of fact, directors play active role in the employment of key staff and also in determining how much can be paid to an employee et al.
5. Draft your articles of incorporation
The next step would be for you to draft and file articles of incorporation with the Secretary of State. Even though it is possible to prepare and file the organizing document yourself, you may prefer to have an attorney handle it, or you can use an online service such as LegalZoom. In most states, you may be required to list the names and addresses of the initial officers and directors of your corporation in the articles.
6. Issue stock certificate
You will then have to issue stock certificates to the initial shareholders, as soon as you receive notice from the Secretary of State that your article of incorporation have been accepted and filed.
7. Apply for the necessary licenses and permits
The next step would be to apply for a business license and other permits specific to your industry, if required by your state or local government. In some cases however, you might also need to apply for federal licenses or permits before your corporation can commence operations.
8. File for SS-4
Next, file for Form SS-4 or apply online at the Internal Revenue Service website to obtain an Employer Identification Number (EIN). You must obtain an EIN even if you don’t plan to hire any employees in the foreseeable future. The EIN is your corporation’s tax ID number, and besides using it to report employee wages, you’ll need it to open a bank account, apply for a loan and file your annual taxes. If you apply online, you can generally obtain your EIN in just a few minutes.
9. Get other ID numbers
Lastly, you will then have to apply for any other ID numbers required by State and Local Government agencies. Requirements vary from one jurisdiction to another, but generally, your business most likely will be required to pay unemployment, disability and other payroll taxes – you will need tax ID numbers for those accounts in addition to your EIN.
Be sure to comply with all filing requirements, because failing to do so could result in substantial penalties. If you are not familiar with state and local filing requirements, it would be prudent to seek legal advice.
10. Meet with Your Partners / Stakeholder and Create Bylaws for Your Corporation
Once your corporation has been duly registered, then you should put finishing touches before opening your door for business. One of the things that you would need to but in place before business operations commences is to create bylaws for your corporation; bylaws are the rules that govern the daily operations of a corporation.
Usually, you are expected to meet with your business partners or stakeholder to create the bylaws for your corporation. Once the bylaws are drafted, it must be adopted by the board or directors during the first board meeting for it to be binding on staff and owners of the corporation.
If you intend to start a C Corporation, it is imperative that you know the difference between it and a Limited Liability Company. While an LLC and a C Corporation are both business structures that offer liability protections to company owners, they are differentiated in several essential ways.
C Corporations make up the majority of the corporations within the U.S. and are the framework for smaller companies as well. C Corporations are typically formed by filing for incorporation at the state level jurisdictions.
5 Common Questions About Forming a C Corporation
Do I need an attorney to form a C Corporation?
It is not absolutely necessary to have an attorney when forming a C Corporation. You can use one of the many services that help entrepreneurs form C Corporations such as Corpnet.
Are paperwork required?
Yes they are. You will have to prepare and file the various paper works involved with the relevant state authorities. You are also required to pay applicable filing fees and franchise taxes.
What should I name my corporation?
It is of utmost necessity to carefully choose the name of your corporation. The name that you should go for should be able to evoke the appropriate image about your brand. It is also necessary to choose a name that is unique. Avoid using a name that is deceptively similar to the name of an existing business.
What is the C Corporation’s business structure?
There are three groups. Shareholders are the owners of the corporation. The directors are managing the affairs of the C Corporation. Finally, officers are responsible for the management of the corporation.
Where should I incorporate my business?
You are not required to form a C Corporation in your home state. There are several states that are attractive to C Corporation filings. Nevada has low tax filing fees. Delaware is popular because it has business-friendly laws and statutes. Obviously, entrepreneurs like to incorporate in low or no income tax states.