Definition of a C corporation
- business taxed as a separate entity; a business taxed under Subchapter C of the Internal Revenue Code and legally distinct from its owners.
Corporations are business entities created according to the statute of a specific state or country by authority of the government. Corporations are comprised of shareholders, which can be individuals or other entities, a Board of Directors and officers. The corporation is recognized as being separate from the individuals and entities.
Because of the length of time corporations have been in existence, there is a long record of statutory and case law which supports the use of a corporation for asset protection. Consequently, corporations are traditionally considered for use as the “First Line of Defense” to accomplish the goal of limited liability.
Following are some important attributes and advantages to a corporation which allow it to be used for limited liability as well as other purposes:
- The corporation is totally separate from any individual– it is not you and you are not it. This is important to remember in maintaining the limited liability protection. It must be treated as a separate individual.
- A corporation can buy, sell, trade, own property, own stock, make loans, etc. and anything else that an individual can do; such actions are governed by the Board of Directors.
- The shareholders of the corporation do not have to live in the state in which the corporation is domiciled.
- Corporations have perpetual existence- if a Director or Officer becomes deceased, the corporation will still exist.
- There are many tax deductions available to corporations, which are not all available to other entity types.
- It is easy to transfer assets and ownership of a corporation.
- Centralized management allows ease of doing business.
- Full fringe benefits can be established through a corporation.
- A corporation has all the rights of an individual except for the Fifth Amendment.
In order to maintain the corporate veil, it’s important to note that certain formalities must be adhered to, such as:
- Avoiding co-mingling of funds
- Issuing stock
- Maintaining corporate records for anything that is of major business consequence
- Making sure that you do not hold the entity out to be an alter ego of yourself
- Keeping your entity in good standing
- Making sure that your corporation has the proper legal authority in the state that it is transacting business by either domestic or foreign qualification
- Limited Liability to assets
- Lower tax rate than individual maximum
- Dividend distribution subject to double-taxation