TrustMakers

C Corporations – C Corps

A " C-Corporation " refers to a standard, general-for-profit, state-formed corporation. Forming a C Corp requires the following: an incorporator is filing (paying appropriate state fees) with Articles of Incorporation and prepayment of taxes with the appropriate state agency. When a C Corporation is properly formed and operating as a corporation, it then assumes a separate legal and tax life that is distinct from its shareholders. A corporation pays taxes at its corporate income tax rates as well as filing separate corporate tax (required forms) each year.

In most cases, management and control of a corporation is vested in the Board of Directors who are elected by the shareholders, who are the owners of the corporation. The Directors make policy and major decisions regarding the corporation. However, they do not individually represent the corporation when dealing with third parties. Instead, officers and employees of the corporation to whom authority is delegated by the Directors of the corporation conduct dealings with third parties.

The Board of Directors is responsible for the management and policy decisions of the C Corporation . However, in few instances the shareholders are required to approve of the actions of the Board of Directors. These actions may include amending to the Articles of Incorporation, sale of all of the corporate assets, merging or dissolving of the corporation, etc...

The Board of Directors elects corporate officers. These officers are responsible for conducting day-to-day operational activities of the C Corporation . Corporate officers usually consist of the following: President, Vice-President, Secretary and Treasurer.

In the majority of the states, one or more persons may form and operate a corporation. However, some states require that the number of persons necessary to manage a corporation should be at least equal to the number of owners. For example, if there are two shareholders, there must also be a minimum of two directors.

Corporations often offer their employees unique fringe benefits. For example, the owner-employees of a C Corp often deduct health insurance premiums that are paid by the corporation from corporate income. Additionally, corporate-defined benefit plans often afford better retirement options and benefits than those offered by non-corporate plans.

In order to retain the corporate existence and thus the benefits of limited liability and special tax treatment, the people running the corporation must observe corporate formalities. Therefore, even a one-person corporation must wear different hats depending on the occasion. For example, one person may be responsible for being the sole shareholder, Director, and Officer of the C Corp ; however, depending on the action taken, that person must observe certain formalities: Annual meetings must be held, minutes of the meetings must be taken, Officers have to be appointed, and shares must be issued to shareholders. Most important of all, the corporation should issue stock to its shareholders and keep adequate capitalization on hand to cover any "foreseeable" business debts.

Where corporate formalities are not observed, then the shareholders may find themselves to be held personally liable for corporate debts. This means that if a thinly capitalized C Corporation is created, funds are commensurate with employees and officers, stock is never issued, meetings are never held, or other corporate formalities that are required by the state of incorporation are not followed, a court or the IRS may "pierce the corporate veil" and hold the shareholders personally liable for corporate debts.

Generally, the corporation is taxed for its own profits; then, any profits paid out in the form of dividends are taxed again to the recipient as dividend income and the individual shareholder's tax rate. However, most small corporations rarely pay dividends. Instead, owner-employees are paid salaries and fringe benefits deductible to the corporation. The result of this is that only the employee-owners end up paying any income taxes on this business income and double taxation rarely occurs.

As a separate legal entity, a corporation is capable of continuing indefinitely. Its existence is not affected by death or incapacity of its shareholders, officers, or directors or by transfer of its shares from one person to another.

Although a corporation is not a "citizen" under the privileges and immunities clause of the Fourteenth Amendment to the U.S. Constitution, a corporation may exercise some of the constitutional protections granted to U.S. citizens. These include,

•  the Right to Due Process and Equal Protection, and the

•  the right to equal protection and due process of law under both the Fourteenth

and Fifth Amendments to the U.S. Constitution.

Other benefits of forming a C Corp that do not present themselves as front running advantages are,

•  Freedom of Speech - Lacking some narrowly drawn restrictions serving compelling state interests, corporations have the right to express themselves on matters of public importance regardless of whether or not those issues "materially affect" corporate business.

•  Right to Counsel - While a corporation cannot be imprisoned, a criminal action can result in fines and other penalties that could harm the corporation's shareholders, officers, and other persons. Therefore, a corporate criminal defendant has a Sixth Amendment Right to Counsel. It should be noted, however, that because a corporation faces no risk of incarceration, it has no right to appointed counsel if it cannot afford to retain private counsel.

One exception to the rights of corporations under the laws is that corporations have no privilege against self-incrimination (e.g. to prevent disclosure of incriminating corporate records).