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2-C Corp

  1. Separate Legal Entity: A C-Corporation is a legal entity separate from its owners or shareholders. It is created by filing articles of incorporation with the state and operates independently from its shareholders.

  2. Double Taxation: C-Corps are subject to double taxation. The corporation itself pays taxes on its profits at the corporate tax rate, and then shareholders are taxed again on any dividends or distributions they receive from the corporation.

  3. Limited Liability Protection: One advantage of C-Corps is that shareholders have limited liability protection. Their personal assets are generally not at risk for the corporation's debts or legal obligations.

  4. Ability to Raise Capital: C-Corps have more options for raising capital, such as issuing stock and attracting investors. This can be advantageous for businesses that require significant funding for growth or expansion.

  5. Complexity and Compliance: C-Corps have more complex legal and compliance requirements compared to pass-through entities. They must hold shareholder meetings, maintain corporate records, and file separate tax returns.

Choosing between a pass-through business structure and a C-Corp depends on various factors, including the business's goals, the level of liability protection desired, the need for raising capital, and the tax implications for the owners. It is advisable to consult with a qualified attorney or tax advisor who can provide personalized guidance based on the specific circumstances and objectives of the business.

C Corp

Characteristics of a Corporation​

A corporation is a legal entity, meaning it is a separate entity from its owners who are called stockholders. A corporation is treated as a “person” with most of the rights and obligations of a real person. A corporation is not allowed to hold public office or vote, but it does pay income taxes. It may be established as a profit making or nonprofit organization and may be publicly or privately held. The stock of a public company is traded on a stock exchange. There may be thousands, even millions, of stockholders in a public company. Stock of a privately held company is not traded on an exchange and there are usually only a small number of stockholders.

To be recognized as a corporation, a business must file an application that includes the corporation's articles of incorporation (charter) with the State, pay an incorporation fee, and be approved by the State. Once the approval is received, the corporation must develop its bylaws. Organization costs, including legal fees, underwriters' fees for stock and bond issues, and incorporation fees, are recorded as an intangible asset and amortized over a period of time not to exceed 40 years.

Ownership in a corporation is represented by stock certificates, which is why the owners are called stockholders. Stockholders have the right to: vote for the members of the Board of Directors and any other items requiring stockholders action; receive dividends when authorized by the Board of Directors; have first right of refusal when additional shares are issued, thereby allowing the stockholder to maintain the same ownership percentage of the company before and after the new shares are issued (called a pre‐emptive right); and share in assets up to their investment, if the company is liquidated. In some states, stockholders are called shareholders.

A number of characteristics distinguish a corporation from a sole proprietor or partnership.

Unlimited life​

As a corporation is owned by stockholders and managed by employees, the sale of stock, death of a stockholder, or inability of an employee to function does not impact the continuous life of the corporation. Its charter may limit the corporation's life although the corporation may continue if the charter is extended.

Limited liability​

The liability of stockholders is limited to the amount each has invested in the corporation. Personal assets of stockholders are not available to creditors or lenders seeking payment of amounts owed by the corporation. Creditors are limited to corporate assets for satisfaction of their claims.

The corporation is considered a separate legal entity, conducting business in its own name. Therefore, corporations may own property, enter into binding contracts, borrow money, sue and be sued, and pay taxes. Stockholders are agents for the corporation only if they are also employees or designated as agents.

Relative ease of transferring ownership rights​

A person who buys stock in a corporation is called a stockholder and receives a stock certificate indicating the number of shares of the company she/he has purchased. Particularly in a public company, the stock can be easily transferred in part or total at the discretion of the stockholder. The stockholder wishing to transfer (sell) stock does not require the approval of the other stockholders to sell the stock. Similarly, a person or an entity wishing to purchase stock in a corporation does not require the approval of the corporation or its existing stockholders before purchasing the stock. Once a public corporation sells its initial offering of stock, it is not part of any subsequent transfers except as a record keeper of share ownership. Privately held companies may have some restrictions on the transfer of stock.

Professional management​

Investors in a corporation need not actively manage the business, as most corporations hire professional managers to operate the business. The investors vote on the Board of Directors who are responsible for hiring management.

Ease of capital acquisition​

A corporation can obtain capital by selling stock or bonds. This gives a corporation a larger pool of resources because it is not limited to the resources of a small number of individuals. The limited liability and ease of transferring ownership rights makes it easier for a corporation to acquire capital by selling stock, and the size of the corporation allows it to issue bonds based on its name.

Government regulations​

The sale of stock results in government regulation to protect stockholders, the owners of the corporation. State laws usually include the requirements for issuing stock and distributions to stockholders. The federal securities laws also govern the sale of stock. Publicly held companies with stock traded on exchanges are required to file their financial statements and additional informative disclosures with the Securities and Exchange Commission. Certain industries, such as banks, financial institutions, and gaming, are also subject to regulations from other governmental agencies.

holding company / holding corporation / parent company​

A holding company, also known as a parent company or a holding corporation, is a type of business entity that exists for the purpose of owning and controlling other companies. It does not typically engage in the production of goods or services itself, but instead, it owns the shares or controlling interest in other companies, known as subsidiaries.

The primary function of a holding company is to exercise control and management over its subsidiary companies. By owning the majority of shares or having controlling interest, the holding company has the power to make decisions and influence the operations of its subsidiaries. This control is often exerted through the appointment of directors and executives to the subsidiary boards.

Holding companies are commonly used in various business contexts, including:

  1. Conglomerates: Holding companies may own a diverse range of businesses across different industries, known as subsidiaries. This allows for diversification of business interests and risk reduction.

  2. Asset Protection: Holding companies can be used as a means to protect assets. By holding assets, such as intellectual property or real estate, in separate subsidiary companies, the risks associated with the main operating company are limited.

  3. Tax Optimization: Holding companies can be established in jurisdictions with favorable tax laws to optimize tax planning strategies. This may involve taking advantage of tax incentives, lower tax rates, or tax treaties.

  4. Family Businesses: Holding companies are often used to facilitate the transfer of wealth and ownership within family businesses. The holding company can act as a vehicle through which family members can hold shares in various subsidiaries and maintain control over the overall business.

It's important to note that the specific regulations and legal structures surrounding holding companies can vary from country to country. Consulting with legal and financial professionals is recommended to understand the legal and tax implications of establishing and operating a holding company in a particular jurisdiction.