What Is A Delaware C Corporation?
All corporations are by default C corporations. That is because a Delaware C Corporation is a tax status and not a type of business. Companies that file Form 2553 with the IRS for Subchapter S Corporation status or a 501(c) application with the IRS to request non-taxable status are not C corporations. Delaware C Corporations are separate entities from their shareholders and are offered limited liability protection to Directors and shareholders.
Benefits of A Delaware C Corporation
One of the key benefits of a Delaware C Corporation are fringe benefits. A company utilizing fringe benefits can deduct employee benefits from their business expenses and the value of those benefits are not expensed as income tax on the owner or the employee. Also, if the owner pays themself a reasonable salary, their salary can be deducted from profits.
A Delaware C Corporation can pay for these employee benefits:
- Health Insurance
- Disability Insurance
- Group Term Life Insurance
- Reimbursement of Employee Medical Expenses Not Covered By Insurance
Some More Benefits Include:
- Pay low taxes on retained earnings.
- Lower Risk of an IRS audit than sole proprietorship or LLC.
- Flexibility in planning federal income taxes
One negative of a Delaware C Corporation is shareholders of a C Corp may be taxed twice, on the company's profits and if those profits are distributed to shareholders as dividends, on the dividends.
Ownership of a C Corporation is divided by shares of common stock. Every C Corporation has one class of common stock, with each share representing one vote at stockholder meetings. After forming the company, the number of authorized shares is decided and listed on the company's Certificate of Incorporation. This number can be increased by filing an amendment to the Certificate of Incorporation with the Delaware Division of Corporations. There are no restrictions in the number of owners in a C Corporation.
Other Types of Authorized Stock
C Corporations may authorize other classes of stock, including preferred or non-voting common stock. These classes of stock have different voting and dividend rights, and may be granted security interests in the company's assets. The board of directors have the right to issue shares in a C Corporation. It sets any price it wants on the share of stock. The board can also choose to not issue authorized shares.
Most venture capital firms will only invest in Delaware C Corporations. If you are not a Delaware C Corp, they may ask you to incorporate again as one before they invest in your company.
The Structure of A Delaware C Corporation
C Corporations are structured into three levels, shareholders, directors, and officers. Shareholders own the company, the board of directors make company decisions and make sure it's heading in the right direction, and the officers run the company operations. As a C Corp, you must comply with corporate formalities, as holding shareholder meetings, board of director meetings, filing annual reports, keeping corporate records as meeting minutes and paying annual fees.
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