C corporation

Versus S corporations

Generally, all for-profit corporations are automatically classified as a C corporation unless the corporation elects the option to treat the corporation as a flow-through entity known as an S corporation. An S corporation is not subject to income tax; rather, its shareholders are subject to tax on their pro rata shares of income based on their shareholdings. To qualify to make the S corporation election, the corporation's shares must be held by residents, citizens or certain qualifying trusts. A corporation may qualify as a C corporation without regard to any limit on the number of shareholders, foreign or domestic.

Formation

In the United States, corporations are formed under laws of a state or the District of Columbia. Procedures vary widely by state. Some states allow formation of corporations through electronic filing on the state's web site. All states require payment of a fee (often under $200) upon incorporation. Corporations are issued a certificate of incorporation by most states upon formation. Most state corporate laws require that the basic governing instrument be either the certificate of incorporation or formal articles of incorporation. Many corporations also adopt additional governing rules known as bylaws. Most state laws require at least one director and at least two officers, all of whom may be the same person. Generally, there are no residency requirements for officers or directors. Foreign aliens are obligated to form corporations via registered agents in many states.

Financial statements

Corporations are required to issue financial statements in the United States. Financial statements may be presented on any comprehensive basis, including an income tax basis. There is no requirement for appointment of auditors, unless the corporation is publicly traded and thus subject to the requirements of the Sarbanes–Oxley Act.

Distributions

Any distribution from the earnings and profits of a C corporation is treated as a dividend for U.S. income tax purposes. "Earnings and profits" is a tax law concept similar to the financial accounting concept of retained earnings. Exceptions apply to treat certain distributions as made in exchange for stock rather than as dividends. Such exceptions include distributions in complete termination of a shareholder's interest and distributions in liquidation of the corporation.

Tax rates

The corporate tax rate is a flat 21% starting January 1, 2018 after the passage of the Tax Cuts and Jobs Act of 2017, on December 20, 2017.

Up through 2017, the Internal Revenue Service (IRS) imposed tax based on the following schedule for "most corporations", except "qualified personal service corporations" and certain other cases:

References

References

1. (20 November 2018). "Some S corporations may want to convert to C corporations". Internal Revenue Service.
2. [https://www.law.cornell.edu/uscode/text/26/subtitle-A/chapter-1/subchapter-S 26 USC Subchapter S].
3. See, ''e.g.'', [https://www.state.nj.us/cgi-bin/treasury/revenue/dcr/filing/page1.cgi New Jersey registration] {{webarchive. link. (August 12, 2011 .)
4. See, ''e.g.'', [https://corpfiles.delaware.gov/Aug09feesch.pdf Delaware fee schedule.]
5. "Delaware Code, Title 8".
6. [https://www.law.cornell.edu/uscode/text/26/301- 26 USC 301].
7. [https://www.law.cornell.edu/uscode/text/26/312- 26 USC 312].
8. [https://www.law.cornell.edu/uscode/text/26/302- 26 USC 302].
9. [https://www.law.cornell.edu/uscode/html/uscode26/usc_sup_01_26_10_A_20_1_30_C_40_II.html 26 USC 331-346].
10. Bryan, Bob. (2017-12-14). "Republicans have a final deal on their tax bill — here's what's in it". Business Insider.
11. [https://www.irs.gov/pub/irs-pdf/i1120.pdf Form 1120 Instructions for 2016] page 17
12. (February 2006). "Publication 542". [[United States Department of the Treasury.