Business Corporation (often called a “C-Corporation”)

What is it?
A C-corporation is the oldest form of entity offering liability protection for its owners. C-corporations are owned by shareholders and managed by a board of directors. The shareholders generally elect the directors and they vote on significant events. The directors oversee the management of the company and hire officers who report to the board. In addition, a C-corporation can have multiple “classes” of stock, with each class having different voting and/or distribution rights for shareholders.

How is it formed?
Articles of Incorporation are required to be filed with the state, and By-laws describing voting and management procedures must be prepared and approved by the shareholders and directors. Corporations are generally required to file an annual report with the state. The shareholders and directors are generally required to hold meetings for elections and approval of key decisions.

How is it taxed?
A C-Corporation is a separate taxable entity. Profits of a C-corporation are subject to double taxation, first at the corporate level and again when they are received by the shareholders as dividend distributions. Also, in many states the “Paid-in-Capital” of a C-corporation is subject to an annual “franchise tax” in addition to the state income taxes.

Who uses it?
C-corporations are one of the most common forms of conducting business and are commonly used by businesses planning on offering stock to the public, manufacturing, commercial and retail businesses with operations in many geographic locations, businesses wanting to compensate employees with stock, and businesses wanting a clear separation between ownership and management. For some professionals (e.g., accountants, doctors, and lawyers), the professional regulations limit the type of entity that may be used by the professionals and corporations are often a form of business that has been approved for use under the state regulations. Not-for-profit entities also generally conduct their operations as a corporation.