If you don’t know much about C Corporations, you can read more in our articles about their pros and cons or just increase your general understanding in our basic guide to C Corporations.

How Do Profits And Taxes Work With A C Corp?

A C Corporation is taxed as a separate business entity. Unlike individuals, C Corporations have to file a designated tax form with the IRS, which is called IRS Form 1120. Additionally, C Corporations have their own tax rates.

Corporations can retain some of their profits and earnings as part of their operating capital, this can shelter some of the profits from taxation.

Stock Dividends from C Corporations

A C Corporation may choose to distribute some of the profits of the company as dividends, which are distributed to shareholders. The percentage of dividends that each shareholder is entitled to depends on how many shares they own.

Dividends that are distributed to shareholders are taxed twice (double-taxed). They are taxed first at the corporate level as profit (on the corporation’s form 1120), and again at the individual level as stock dividends (on the shareholder’s form 1040).

What are a C Corporation’s Legal Requirements?

A C Corporation must meet certain requirements:

1. Hold an Annual General Meeting (AGM) for the shareholders and the board of directors
2. The annual meetings are used to discuss and decide important information, strategic decisions, opportunities, risks and issues that the corporation will need to deal with.
3. Issue shares to investors as ownership of the business
4. Ownership in a corporation is expressed through the issuance of shares. The management of the corporation is governed by a board of directors who are elected by the shareholders.
5. Appoint a board of directors
6. The board of directors select officers who manage the day to day activities of the corporation. The board of directors also drafts bylaws for the corporation. These are written protocols that state the way that the corporation will be governed.
7. Assign Certain Positions in the Corporation
8. A C Corporation will need to have all of the following positions. In a small C Corp, one person could hold multiple of these positions.
   • Shareholders: They own the company’s stock and are responsible for electing directors, amending the bylaws and articles of incorporation and approving major actions taken by the corporation like mergers and the sale of corporate assets. They alone are allowed to dissolve the corporation.
   • Directors: They manage the corporation and are responsible for issuing stock, electing officers and making the corporation’s major decisions.
   • Officers: The corporation must have a president, secretary, and treasurer. These officers are responsible for making the day-to-day decisions that govern the corporation’s operation.
   • Employees: They receive a salary in return for their work for the corporation.

Two other popular business entity structures in the US are the S Corp and the LLC. They provide many of the same protections offered by a C Corp but have less formal rules on taxation, governance and compliance. This can mean more flexibility in how an LLC or S Corp is owned and funded.

One of the main differences between C Corps and S Corps / LLCs are how income from the different types of businesses are taxed.

• For LLCs and S Corps, any income earned by the business “flows through” to the business owners’ / shareholders’ / members’ tax returns, where it is taxed as part of1 their overall income. The company does not have to file a separate tax return.
• S Corps and C Corps can pass on some of their profits to shareholders as dividends.
• S Corps are limited to having a maximum of 100 shareholders.
• A C Corp is taxed at the corporate level — That means it has to file a separate tax return as a business entity and will need to pay corporation tax on any profits earned.

Ready for the challenge? Use our online form to start the process today. You can also learn about other types of corporations in our overview article.