Question

7. Explain the use and rules that apply to C Corporation subsidiaries.

Answer 1

Most of the corporations in the U.S are C corporations. They offer unlimited growth potential through the sale of stocks.There is no limit to the number of shareholders .There are many benefits of a c corp. Below are some:

*Limited liability

*Perpetual existence.

*Enhanced credibility.

*Unlimited growth potential.

*No shareholders limit. However, once the company has $10 million in assets and 500 shareholders, it is required to register with the SEC under the Securities Exchange Act of 1934.

*Certain tax advantages. Enjoy tax-deductible business expenses.

How to Form a C Corporation

*Choose a legal name and reserve it, if the Secretary of State in your state does that sort of thing (not all do).

*Draft and file your Articles of Incorporation with your Secretary of State.

*Issue stock certificates to the initial shareholders.

*Apply for a business license and other certificates specific to your industry.

*File Form SS-4 or apply online at the Internal Revenue Service website to obtain an Employer Identification Number (EIN).

*Apply for any other ID numbers required by state and local government agencies. Requirements vary from one jurisdiction to another, but generally your business most likely will be required to pay unemployment, disability, and other payroll taxes – you will need tax ID numbers for those accounts in addition to your EIN.

Complexities related to c corporations :

A corporation is more complex to operate than an LLC. The corporation laws require more formalities in how a corporation is managed. For example, shareholder and director meetings are required. Proper notice must be given and minutes kept. In contrast, LLCs can be managed more informally. Corporation laws also tend to have stricter record-keeping requirements.

A corporation is a separate tax-paying entity unless it makes an election to be taxed as an S corporation. This means a C corporation pays corporate income tax on its income, after offsetting income with losses, deductions. and credits. A corporation pays its shareholders dividends from its after-tax income. The shareholders then pay personal income taxes on the dividends. This is the often mentioned “double taxation". However, there are ways to reduce or eliminate double taxation that a tax adviser can recommend.