Information About the California C Corporation
The California C Corporation or C-Corp As it is Known: A Businessperson’s Overview
California C Corporation Taxation
A California C corporation is the default business model for California businesses. C corporations are taxed as separate entities from their owners. Therefore, they do not undergo pass-through taxation. Instead, the income of the California corporation is taxed before being divided amongst shareholders, when the corporation files its own tax return. The income is taxed again when shareholders file individual tax returns after receiving dividends. This is called double taxation, and is not a problem for S – corporations and California LLCs. However, since dividends have already been taxed at the corporate level, they usually qualify for a lower rate of 15 percent upon being taxed at the individual level.
California C – corporations do enjoy several tax benefits. For example, if a C – corporation pays salaries to employees and managing shareholders, these salaries can be deducted from the company’s taxable income. The primary tax advantage regarding California C – corporations, however, is the ability to control the distribution of your profits, and therefore largely control your taxation. You can do this by keeping money in the corporate bank account and avoiding taxation, until you are ready to distribute the funds the shareholders as dividends.
California C – Corporation Management and Ownership
The California C – corporation follows all management and ownership guidelines listed in the section California Corporation Operation, Management, and Ownership. However, one major distinction exists between S and C – corporations, in that California C – corporations are not limited in the number of owners they can have. Similarly, unlike S – corporations, the owners of California C – corporations are not required to be US citizens or permanent residents.
Who Should Choose a California C Corporation
Advantages of the California C – Corporation
Although aspects of taxation might make choosing a California C corporation less appealing, this setup offers many advantages, and is ideal for those who wish to operate a medium to large business. Advantages of the California C – corporation include:
Establishing a California C – corporation can reduce the audit risk faced by your business and its owners. Members of a California LLC or owners of an S – corporation are more likely to be audited than a California C – corporation, since the IRS generally scrutinizes individual tax returns closely.
As long as California C – corporations remain within reasonable limits, they can retain and accumulate earnings within a corporate bank account from year to year, before undergoing taxation.
C – corporations can have many classes of stock, while S – corporations can only have one.
California C – corporations can have unlimited shareholders.
Disadvantages of the California C – Corporation
A California C – corporation is not ideal for someone who does not wish to operate a large business. Double taxation is probably the biggest deterrent from establishing a California C – corporation. Also, California C – corporations exist as separate tax entities from owners, making tax deductions based on business expenses less feasible.