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C-Corporations

California C-Corporation Formation

ADVANTAGES

  • Liability protection
  • Ease of ownership transfer
  • Unlimited owners
  • Unlimited life
  • Stock issuance
  • Investor friendly
  • Tax advantages for self-employed
  • Expenses are tax deductible

DISADVANTAGES

  • Subject to corporate tax
  • Cost of formation
  • Administration and reporting requirements

A California C-Corporation creates a separate legal entity that is independent of those who own or operate the business. A corporation can enter into contracts, and conduct other legal business in much the same way as a person. And, like a person, it must pay taxes, can be sued and is liable for debts.

While a C-Corporation can be a suitable structure for a business, there are a number of potential disadvantages, including cost of formation, complex administration, reporting requirements and tax disadvantages. The Los Angeles business lawyers at Howard Law assist owners with corporate formation in Los Angeles and the surrounding area, including Anaheim, Santa Ana and Riverside.

Formation of a C-Corporation in California requires a number of steps, including:

  • Choosing and registering a legal name
  • Naming directors to a corporate board
  • Preparing and filing articles of incorporation
  • Creation of corporate bylaws
  • Filing a Statement of Information with the Secretary of State
  • Holding regular corporate meetings
  • Issuing stock
  • Complying with tax and regulatory requirements
  • Banking requirements

A California C-Corporation is subject to federal taxes on a sliding scale starting at 15 percent of income, as well as California income tax of 8.84 percent on net profits. The minimum California tax is $800, regardless of profitability, except during the first year of a corporation's existence. Stock is issued to owners of a C-Corporation, as well as to investors or other individuals, as well as corporations that contribute assets or assistance in a company's formation or operation. Those who own stock can receive any dividends a corporation pays and are entitled to receive assets after creditors are paid in the event of a corporation's liquidation.

A California C-Corporation can offer many advantages, including the ability to issue stock to investors, protection from certain debts and other business liabilities, ease of sale and continuity of the business.

However, maintaining a C-Corporation business structure is more complex than for many other types of business ownership. Board meetings, state filing requirements and, in some cases, annual shareholder reports must be compiled. And a corporation must be properly formed and administered in order to offer full protection to owners.

In the event of a serious liability issue, default on debt or business failure, creditors may ask a judge to hold a corporation's owners responsible. In such cases, the court will take into account a number of factors, including:

  • Whether owners observed corporate formalities, such as minutes and board meetings.
  • Whether shareholders treated a corporation as a separate entity.
  • Whether the corporation began life with assets of its own.

In addition to proper formation, owners of a corporation should take steps to help protect themselves from being viewed as one with a corporate entity, including:

  • Maintain separation of corporate money.
  • Conduct business as an officer of a corporation.
  • Establish a corporation with assets of its own.
  • Observe minutes, meetings and other formalities.

Forming a C-Corporation should always be left to a qualified law firm with the legal knowledge and experience to properly establish and administer a corporation. Once established, a corporation has a life of its own, is subject to tax even if unprofitable, and has specific filling requirements and required steps for dissolution. For legal advice on California corporate formation, or corporate litigation or disputes, contact Howard Law for a confidential appointment to discuss your rights.

California C-Corporation Attorneys - Call (800) 872-5925 - Howard Law