What is a C Corp? Definition, Examples, & How It Works

C Corporations (C Corps) are robust professional entities that legally separate owners from their businesses – unlocking a world of benefits in the corporate space. 

Although C Corps are more commonly used for large organizations, businesses that expect to grow considerably should think about adopting a C Corp structure as well. 

In this article, we’ll break down the origins of the term, its defining features, and how you can use C Corp formation to your advantage. 

Whether you’re a seasoned business owner and entrepreneur or in the midst of developing the skeleton of your business, knowledge of C Corps will separate your business from others.

Let’s get started!

Key Takeaways

• C Corporations are legal business structures that are utilized for a number of reasons, such as taxes and liability.
• Bigger businesses are more likely to benefit from registering as a C Corp.
• There are pros and cons to weigh before deciding whether to become a C Corp
• C Corps are different from S Corps
• Forming a C Corp can be easy, if you follow the right steps and procedures.

What is a C Corporation?

C Corporations are a legal business framework that can be implemented in the United States. 

Businesses of all sizes and types can become C Corps, as C Corps can limit liability and define ownership within a business (among other things).

Related reading: How to start a C Corporation

C Corporation Examples

Some of the biggest names in business are C Corps! For example, Microsoft, Apple, General Electric (GE), and Walmart comprise just a fraction of the thousands of companies that have incorporated the C Corp structure.

Particularly, many publicly traded companies like the ones listed above prefer the C Corp designation. 

One reason for this is that C Corps can sell shares of stock to investors in order to increase their capital.

Pros and Cons of C Corporations

There are many pros (and some cons) to C Corps. Take a look at some in the chart below:

Pros	Cons
Personal asset protection due to limited liability	Higher overall taxes
Separation of owner and business	Extensive regulation
Tax benefits for offering employee benefits	Required to report ownership

C Corp vs. S Corp

In the interest of making more comparisons to fully understand what a C Corp is, let’s compare and contrast a C Corp with an S Corp:

C Corp	S Corp
Accommodates a larger number of shareholders and/or more capital	Greater tax structure (no double taxation)
More ownership flexibility	Limitations on shareholders (type and number)
More compliance issues	Less compliance requirements

If you are choosing between a C and S Corp, consider the tax structure of each, as well as the capital requirements of the business.

Between the two choices, the liability is the same. Overall, before making any decisions, consult a business and/or tax professional to walk you through your options.

Related Reading: C Corp vs. S Corp

Tax Considerations

One major tax consideration for C Corps is the double taxation structure. C Corps are taxed twice – the corporate level is taxed first, followed by the taxation on the dividends. 

Although C Corps typically benefit from lower corporate tax rates, this can change with the market or legislation. 

Also, C Corps might be able to claim tax credits (through research and development) to bring their overall tax burden down.

How to Form a C Corp

Here is an outline of the steps required to form a C corp:

1. Choose and register a business name

Choosing and registering a business name can be done through the Small Business Association. 

Make sure that the name you choose is not similar to any other trademarked name, or you could receive a cease and desist notice.

2. File articles of incorporation

These documents involve divulging information about the business such as its name, the purpose of operation, the number of shares of stock, and more. 

It is best to complete these documents with a professional if you are new to this process.

Related reading: What are Articles of Incorporation?

3. Issue stock to shareholders

Prior to issuing stock to shareholders, hold a meeting in which the share price is determined and stock certificates are produced. 

Once this is completed, draft contracts where the purchase of stock is agreed to through a signature.

4. File form SS-4 to obtain employer identification number (EIN)

Previously, people were able to obtain EINs at their local IRS office. However, it has recently become an electronic (or mail-in) service only. 

With that in mind, if you visit the IRS website, you can fill the form out on their website to obtain your EIN number.

5. Meet C Corp eligibility requirements

The business requirements of a C Corp include choosing a legal business name, choosing a state of incorporation (U.S. only), creating corporate bylaws, appointing officers and directors, and obtaining an EIN.

6. Establish a board of directors

As said previously, running a legitimate C Corp requires the establishment of directors and officers, such as president, secretary, and treasurer positions.

7. Schedule and hold annual meetings

These meetings should discuss the compliance with C Corp rules, as well as the benefit of being a C Corp to the company (as this can change).

Quick Start – Use a business formation service like LegalZoom. As there are many steps involved in forming a business. Business formation services are tremendously helpful to entrepreneurs by handling all of the challenging paperwork. These services make starting a business more accessible and can also help you complete all of the legal steps required to become a C Corp.

Next Steps

You’ve made it through to the end of this piece on C Corps! If you’re thinking about registering as a C Corp, visit the Small Business Association website to begin the process. 

C Corps can have terrific professional advantages in the right company, but a business owner should ask a lot of questions to professionals before making the switch.

Once you’ve decided, your business journey with a C Corp begins!

FAQs

Related reading:

• What is incorporation?
• What is a certificate of incorporation?
• 6 types of corporations