What is a C corporation

C corporation is a legal structure for a business corporation where owners and shareholders are taxed separately from the organization. It is one of the best business setups in the US. It is subjected to double taxation, where profit is taxed at the corporate and personal levels. So that the shareholders/owner's assets are not at risk for the corporation debits. This business structure has the advantage of limited liability, permanent existence, and improved credibility in the business market.

Key features of C corporation

Under the US federal income tax law, a C corporation is any corporation that is taxed separately from its owners or shareholders. We will see some key features of C Corporation,

• Limited Liability: C corporation limits the personal liability to the directors, shareholders, employees, and officers. Shareholders are not responsible for the corporation's debts or legal issues personally. Their responsibility is limited to the amount that they invested in the company.
• Unlimited Shareholders: C-corporation has no restrictions on the number of shareholders to invest in the business. The shareholders of C corporation are the owner of the company.
• Double Taxation: When a C corporation generates profits for the year and if the profits are distributed to the shareholders in the form of dividends, then double taxation occurs. In this method, the profits are taxed first at the corporate level and then again at the individual level.
• Separate Legal Entity: C corporation is considered a separate legal entity from its owner. C corporations possess many rights and responsibilities as individuals. It has its own liabilities, responses, and obligations.
• Perpetual Existence: A C corporation has perpetual existence, which means it has been continued even if the directors or shareholders change. It's not dependent on the involvement of its owners and has long-term planning and continuity.

How C corporation works

In the US, they commonly used a C corporation business structure. It is a publicly traded entity, where business and personal assets are individually identified and separately taxed. The entity pays corporate taxes from its earnings before the profits are distributed to the shareholders. Every individual shareholder is subjected to personal income taxes on their dividends. Even though double taxation is an unfavorable one, the reinvestment of profits in the company at a lower corporate tax rate is one advantage.

A C corporation requires to conduct at least one meeting each year for shareholders and directors. A C corporation must keep the details of the company director’s voting records, a list of the owner’s name, and the percentage of ownership and also it will file the annual report, financial disclosure reports, and financial statement.

Basic requirements of C corporation

While establishing a C corporation, it needs a minimum of three directors if the shares of the corporation have to be distributed. If not, it only needs one or two directors.

• The corporate directors don’t have any age requirements.
• The directors of the corporation should not belong to California residents.
• C corporation doesn’t have a limit for the number of shareholders.
• C corporation shareholders can be individuals or other business entities and should not be U.S. citizens or residents.

Legal Requirements and Steps to Establish C Corporation in California

Choose a unique name: While establishing a C corporation in California, you should select a unique name for your corporation. This name should not be already in use and should include the corporate designator names like “corporation”, “incorporate” and so on.

To file Articles of Incorporation: After choosing a name for your corporation, you need to prepare and file an article of Incorporation with the California state secretary. This serves as the legal document to establish your corporation. This article should contain information about the corporation's name, the purpose of the entity, the number of shares, available stocks, corporate office address, and other required details. You can file these articles of incorporation online and by email.

Initial Directors appointments: In the initial stage, California requires at least one director, and their name and address should be included in the articles of incorporation.

California Registered Agent: In California, C corporations require to choose a registered agent to receive legal advice and legal documents on behalf of the business. This should include legal documents, tax documents, and government notices. This agent should be available during business hours whenever they need and the corporation should not have its own registered agent. The registered agent should have a physical address in California.

Prepare corporate bylaws: The corporation bylaws should contain the internal rules and procedures for operating the corporation. It covers the details such as shareholder meetings, responsibilities of directors, roles of the officers, and parties. These corporate bylaws should be kept with your corporate records and should not need to be filed with the state.

Get Licences and Permits: Based on your business activities, you need to get specific licenses and permits depending on local, state, or federal levels.

Statement of Information filing: Within 90 days from the filing of an article of incorporation, you must file the statement of information to the California state secretary and this can be done every year. This statement of information contains updated information about the offices, directors, and registered agents.

Pay fees and taxes: While submitting the documents to the California state secretary, you need to pay the filing fees and taxes accordingly. Additionally, you have ongoing tax obligations, filing corporation tax returns, and applicable state and federal taxes.

Obtain California EIN (Employer Identification Number): In California, every C corporation must obtain an Employer Identification Number (EIN). This EIN is like the company's SSN (Social Security Number). The purpose of EIN is for tax documents and opening a bank account for business. This EIN can be registered online or via mail by the business owner.

Issues faced while establishing C corporation in California

While establishing a C corporation in California, you may face several issues and challenges.

Availability of name: Due to the higher number of existing businesses in California, finding a unique one for your corporation can be a challenge for you. This name should not conflict with any existing business or entity.

Compliance requirements: For C corporations, California has specific compliance requirements. It may include filing annual statements, proper corporate records maintenance, and holding directors and shareholders meetings. For those things, it may require some professional assistance.

Licensing and Permits: Depending on your business activities, you need to obtain licenses and permits from the state, country, or city authorities. It can be a complex one to obtain.

Changing regulations: Laws and regulations are subjected to changes. It may affect your C corporation such as tax laws, employment regulations, or corporate governance requirements.

Employee-related regulations: If you want to hire new employees, you must comply with California’s extensive laws and regulations. These laws and regulations include minimum wage requirements, over-duty rules, meal and break regulations, and other employment regulations.

Taxation: California has a complex tax system and C corporations are subjected to state corporate income taxes. These can be high and have their own rule of taxable income.

To overcome these issues effectively, it is advised to consult with legal and tax professionals. The professionals should specialize in California corporate law and also they provide guidance and assistance to running your C corporation smoothly.

Conclusion

A C corporation is a type of business entity that is legally separate from its owners, and it offers limited liabilities to its shareholders. California is one of the popular states for establishing C corporations due to its environment and economic opportunities. While establishing a C corporation in California, it is essential to consult with professionals who have expertise in tax, legal, and accounting. They must guide you through the process and ensure compliance with all laws and regulations.

Our Services

Sole Proprietorships and Partnerships
LLC or Corporation
C-Corporation
S-Corporation
Non-profit organization
Start an LLC corporation in California

Related blogs

Register a Company in the USA
A step-by-step guide to registering a business name in California
Protecting a business name in California
How to start an LLC corporation in California