What is a C Corp?

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c-corp1One of the hot tax topics again these days is C Corporations, also known as C Corps. Over the next few weeks, we’re going to talk about the benefits, tricks and traps of C Corps. They can work great in the right circumstances, but not in every case. Let’s start off with a basic explanation.

What is a C Corp?

All corporations start off as C Corporations. They are formed using state law. That’s where the terms California C Corp or Delaware C Corp come from. It is related to the state in which it is formed.

You can later get another state corporation authorized to do business in a different state. For example, you may form a NV C Corporation and then get it authorized to do business in California. You won’t save anything in taxes doing that and in fact, you’ll end up paying more in fees because you’ll have to pay both Nevada and California state fees.

Basic C Corporation Structure

The owners of the company are called shareholders. Stock is issued to the owners by the company.

There is a Board of Directors that is elected by the shareholders and from that, officers such as the President, Vice-President, Secretary, and Treasurer are elected.

When it comes to taxes, the C Corporation is not a flow-through entity. It files a Form 1120 federal tax from and tax is assessed and paid at the corporate level.

The shareholders can make an election to turn the C Corporation into an S Corporation and, if they qualify, it means that the company will become a flow-through entity for tax purposes.

In the next few articles, we’ll talk about whether the C or S Corp is right for you, how and when to use the unique benefits of C Corps to put more money in your pocket and what traps you need to avoid with C Corporations.

C Corporations are one of the most misunderstood structures available. Used properly, a C Corp can save you thousands. Used improperly, a C Corporation can cost you hundreds or thousands, too. Learn more with the digital download: Tricks and Traps of C Corporations

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