This type of general, for-profit corporation is referred to as a “C” corporation (referring to Chapter C in the IRS code). “C Corporation” merely refers to a regular, state-formed corporation. A corporation is owned by shareholders and is managed and controlled by the board of directors who elect the president and are responsible for the management and policy decisions of the corporation. The dealings of the corporation are carried out by the officers and employees of the corporation under the authority delegated by the directors of the corporation. To be incorporated an Incorporator must draft legal documents and file the documents with the appropriate government agency, usually the Secretary of State, and pay the required fees. In order to maintain corporate status, certain formalities must be observed – annual meetings must be held, corporate minutes of the meetings must be taken, officers must be appointed, and shares must be issued to shareholders. The corporation will issue stock to its shareholders and keep adequate capitalization on hand to cover any foreseeable business debts.
Some reasons to choose this business structure include:
- Your business needs the ability to issue stock or stock options to attract key employees or outside investment capital.
- Your business is so profitable that you can save significant income tax dollars by keeping some profits in the corporation each year. This strategy is called “income splitting” because profits are essentially split between the individual owners and the corporation.
- You own a family business and you want to begin making gifts of ownership to your family as part of your financial or estate plan or to plan for the next generation of owners. With a corporation it is possible to make gifts of shares in your company without necessarily giving up management control and without paying gift tax.
- Others insist that you incorporate your business.