A C Corporation is one of the numerous legal entities formed to recognize a corporation for regulatory tax and official purposes, officially. A C Corporation is simply a company form that contrasts with other standard business structures such as Limited Liability Companies (LLCs), S Corporations, and Sole Proprietorships.
C-Corporations can range in size from sole proprietorships to multinational corporations with hundreds of shareholders and directors. This company structure is unique in that it is a legal and tax-paying entity distinct from the owners. As a result, C-Corporations are typically more complicated than other company forms. They do, however, provide more liability protection.
A C-Corporation is formed with state authorities and is controlled by the state’s corporate laws. To incorporate, you must register your business name with your state and file articles of incorporation. Additionally, c-corps are assessed a charge.
Several more common reasons for small businesses in the United States to incorporate as C corps are to obtain additional legal protection and tax advantages. Consider the following benefits in further detail.
- Capital Raising Capacity
C corporations can raise money—or “capital”—by selling stock. The concept is to convince investors that your business will continue to be successful and that the value of your shares will increase. This is especially beneficial if you have a fantastic company concept but lack the capital necessary to get it off the ground.
- Protection Against Liability
Numerous businesses prefer to incorporate as a C company to protect themselves. When you own a single proprietorship, your personal funds and the business funds are combined. If your firm runs out of money, you will run out of money as well. If the business is sued, you are also sued. However, a C corporation has a distinct legal and financial standing. If something goes wrong with your firm, the corporation’s money is at stake. Your personal belongings are secure.
Because C companies are distinct legal entities, they do not dissolve immediately upon the death of an owner. For instance, suppose you and a business partner hold a C corporation jointly. Your partner chooses to leave the firm one day. They can sell their shares, and the business continues to operate. An alternative company entity, such as an LLC, might dissolve under the same scenario. However, a C corporation is capable of rolling with the punches.
Related: How to Buy a Business with Retirement Funds
Forming a C Corporation
If you wish to form your own C Corporation for your business, you must first choose and register a business name. Obviously, you must choose a unique name that no one else has registered. Next, you will need to file the articles of incorporation in your state. Now the C corp will sell stocks to the shareholders, who will become owners of the corporation upon buying them. Lastly, you will need to get an employer identification number, or EIN.
Once established, a board of directors must be appointed. This group will oversee the management of the entire corporation. There must be an annual meeting of shareholders where minutes must be kept. This helps maintain transparency of all business dealings.
Related: Debt Financing Alternatives for Business Owners
C CORP and ROBS
Where does the C Corp fit in with IRA Financial’s services? ROBS – the Rollover Business Startup Solution! ROBS allows one to use retirement funds to start or grow his or her own business. If you don’t have the needed capital to get your business off the ground, you can actually dip into you IRA, 401(k) or other retirement plan to get the funds necessary. However, this cannot be done without using a C Corporation. This is because, you need to have a business that has the ability to offer qualifying employer securities, or stocks.
When utilizing the ROBS structure, a Corporation must be formed. You cannot use an S Corporation or LLC because of the previously mentioned ability to offer up stocks. In the case of an S Corp, only individuals may purchase stocks. Because ROBS relies on a 401(k) plan (a trust) to buy the stocks, it may not be used.
To get started on the ROBS, you must rollover previous retirement fund into a new 401(k) plan that is created. Once a C Corp is formed, it will sponsor your new 401(k) plan. You can then invest the 401(k) funds in stocks of the C Corp. Those funds are then deposited in the bank account of the C Corp and can then be used as capital to buy or improve a business.
Learn More: What is the Rollover Business Startup Solution?
Benefits of ROBS
- Using the ROBS structure in conjunction with a C Corporation offers one several benefits.
- Tax-free use of retirement funds as capital for your business
- The ability to earn a salary and be active within a business investment
- Invest retirement funds in yourself, instead of volatile markets
- Lower corporate tax rate thanks to the Tax Cuts & Jobs Act
- Offering a retirement plan can help attract and retain employees
- Strong creditor protection of your assets
Learn More: Pros and Cons of Rollover Business Startups
The C Corporation is a powerful entity and best utilized with the ROBS structure.