Information regarding C-Corporations and C-Corporation Structures is provided in the following sub-sections:
- Choosing to implement C-Corporation structures
- Typical Uses
- Tax Compliance
This is the designation given by the tax law to refer to those corporations that have not elected to qualify for S-corporation status or any other special corporate treatment. It is also referred to as a "regular" or an "ordinary" corporation.
C-Corporations are the oldest form of entity offering liability protection for its owners. C-Corporation structures are owned by shareholders and managed by a board of directors. The shareholders typically elect the directors and vote on important corporate events. The directors administer the management of the company and hire officers who report to the board header.
- Creditors are restricted from suing the C-Corporation's owners to collect debts. The C-Corporation's owner's personal assets are protected from attachment or seizure to pay the company's debts. The feature creates a limited personal liability for business debts.
- Benefits provided to employees - such as medical, dental, educational and group term life insurance - can be deducted by the corporation as a business expense.
- A corporation is considered an individual entity which can be sued, taxed and enter into contracts with other people, companies and corporations. C-corporation structures are owned by its shareholders. The shareholders elect a board of directors to set and oversee policy and major business decisions. When the ownership of C-corporation structures change, the corporation is not dissolved.
- There are lower applicable tax rates for distributing corporate profits between owners. Also for distributing corporate profits and reinvesting those profits in the business. Corporations can raise funds through sale of stock. There is no limit on how many people can become stockholders. Preferred and common stock can be issued by the C-Corporation enabling shareholder voting rights.
- Foreign nationals can own or invest in a C-Corporation structures.
CHOOSING TO IMPLEMENT C-CORPORATION STRUCTURES
- Corporations do not pay self-employment tax, saving 15.3% on monthly taxes.
- The ability to control when and how money is distributed is a crucial tax advantage for C-Corporations by controlling retained earnings and dividends.
- C-Corporations are the only business structure that can split profits between retained earnings and dividends.
- C-Corporation are easier to form than S-Corporation or LLCs.
- C-Corporations can engage in equity or debt financing more easily than other corporate structures.
- Venture capitalists typically will not invest in LLCs and cannot invest in Sub-S Corporations.
- C-Corporations can more easily provide equity compensation.
- C-Corporations can be bought out for stock on a tax-deferred basis, and not pay tax on the stock received until sold. This mechanism provides an excellent exit strategy methodology.
- C-Corporations provide potential self-employment tax savings over LLC structures.
- C-Corporations have no limit to the number or types of shareholder.
- With proper structuring “double taxation” can minimized and/or completely eliminated
C-corporations are one of the most common forms of conducting business and are commonly used by businesses planning:
- Offering stock to the public.
- Manufacturing operations.
- Commercial and retail businesses with operations in many geographic locations.
- Businesses seeking to compensate employees with stock.
- Businesses seeking a clear separation between ownership and management.
- Non-profit organizations typically conduct operations as a corporation.
- You can issue qualified small business stock and potentially qualify for the qualified small business stock benefit under Section 1202 of the Internal Revenue Code and the rollover benefit under Section 1045 of the Internal Revenue Code [For investments in C corporations that are qualified small businesses under Section 1202 of the IRC before the end of 2011, the tax rate after holding the stock for 5 years is Zero--including a complete AMT exemption (subject to a cap (but a substantial one)).]
- You avoid the issuance of Forms K-1 to owners, subjecting them to federal income tax on the corporation's income (regardless of whether that income is distributed to them), and potentially subjecting them to state income taxes in the various states where the corporation operates.
- You avoid having to agree to a cash distribution scheme to cover the taxes of the owners on the entity’s income taxed to them.
ALLOWABLE TAX DEDUCTIONS
- Charitable Deductions - Deduct charitable contributions up to a value of 10% of corporate taxable income.
- Medical, Dental and Drug Expense Reimbursement Plan - Deduct the cost of medical, dental and drug (prescription and non-prescription) expenses not covered by health insurance up to the MERP stipulated limit without the employee having to include the benefit in their income.
- Health Insurance - Deduct all premiums paid on health and dental insurance.
- Disability Insurance - can purchase disability insurance for its executives or other employees and deduct the premium without the cost being taxable to the executive or employee.
- Business Automobile - Can reimburse an executive or employee the mileage rate permitted for the business use of an automobile owned by the employee or can purchase or lease a business automobile and deduct all costs associated with business usage.
- Business Insurance - The premiums for insurance [Policies for the corporation are deductible
- Tangible Property (Section 179) - deduction of up to $100,000 (in the year of purchase) of the cost of tangible personal property to be used in the business. Computers, off-the-shelf computer software, and office furnishings all qualify as Section 179 property.
- Retirement Plans - deduction of contributions to qualified retirement plans.
- Business Entertainment and Meals - deduct up to 50% of cost of meals consumed during business entertainment or professional development. The cost of meals with employees is 100% deductible.
- Education Expense - deduct education expenses (limited to $5,250) of its employees for them to maintain or improve their skills.
- Dues and Subscriptions - can deduct the cost of dues for business or professional organizations, business related newspapers and subscriptions.
- Conventions and Continuing Education - deduct the cost of travel, lodging, meals and program fees for employees attending conventions and continuing education.
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