Business Lawyer for C Corporations in Wisconsin

What is a C Corporation?

A C corporation, or C corp, is a business structure with a separate legal identity from its owners.

A C corp is created by filing articles of incorporation with the relevant government organization. The owners of a C corp are shareholders, who hold a percentage interest in the business typically proportionate to their investment. Shareholders elect a board of directors who oversee operations and choose officers to manage the day-to-day affairs of the business.

One of the most attractive features of a C corp is that it protects shareholders' personal assets from the corporation's creditors. In the event of bankruptcy or a lawsuit against the corporation, the owners cannot be held personally liable.

When it comes to taxation, C corps are taxed at the entity level, paying federal corporate income tax on their profits. Shareholders receive distributions of these business profits, usually as dividends. Shareholders also pay tax on this personal income at the individual rate.

A C corp is the most common type of corporate tax status in the United States.

C Corporations vs. S Corporations

Some C corps elect to become S corporations, a special tax status. There are some essential differences between C and S corps that you should know before selecting one over the other.

S corps do not pay federal income tax at the entity level, avoiding double taxation.
S corps cannot have more than 100 shareholders.
S corps must meet certain eligibility criteria, e.g., it must be a domestic corporation or the shareholders must be U.S. citizens.
S corps can only have one class of stock.

You should seek advice as to whether a C corp or S corp is better suited to your business.

Advantages of a C Corp in Wisconsin

Many advantages flow from a C Corp structure. Knowing them will help you understand if your business is best suited for this type of business entity.

Limited liability. As the corporation is a separate legal entity that can sue and be sued, own property and other assets, and take out loans, its shareholders' personal liability is limited to the amount of their investment. This protects their personal assets from any business debts or liabilities in the event the corporation files for bankruptcy or undergoes litigation.
Flexible ownership and management. C corp ownership can change through the buying and selling of shares. The management of a C corp can also be easily changed. This flexibility ensures the survival of the business, meaning it can continue to operate seamlessly after an owner or manager is terminated, resigns, or otherwise leaves the company.
Large fundraising potential. Unlike an S corporation, a C corp can have an unlimited number of shareholders. This allows C corps to raise large amounts of capital through, for example, an initial public offering.
No shareholder restrictions. Unlike an S corporation, there are no limits on who can hold shares in a C corporation. For example, shareholders in a C corporation do not need to be US citizens. C corporations can also issue more than one class of stock, an attractive feature to potential investors.

Before setting up a C corp, it's crucial to balance these pros against the potential cons. A corporation lawyer can help you align your company's goals with the advantages and identify how any disadvantage can be strategically addressed.

Disadvantages of a C Corp in Wisconsin

Several disadvantages of a C corporation can impact your business. Three of the main disadvantages associated with C corps are described below.

Double taxation. A C corp pays federal income tax on its profits at the entity level. Shareholders are also taxed on any dividends they receive from the business at a personal rate.
Increased regulations and oversight. C corporations require onerous recordkeeping and reporting obligations. Annual shareholder meetings must be conducted regularly, and minutes of these meetings must be recorded. Details of the division of ownership and the director's voting records must also be recorded. They also involve complicated tax arrangements.
More costly to set up and run. Businesses are typically required to pay a filing fee when registering a C corp. They may also be required to pay additional annual state-based fees. Due to the complex regulatory environment C corps operate in, they typically engage attorneys and accountants to ensure compliance with federal and state laws.

Before deciding to incorporate, it's worth speaking to a corporate lawyer to understand the advantages and disadvantages relevant to your situation.

What Types of Businesses Are Best Suited as C Corporations?

Not all businesses prosper or succeed as a C corporation. The C corp structure typically suits businesses that:

Require venture capital
Seek to own real estate
Want to reinvest earnings into the business to fund growth
Want to ensure flexible profit-sharing among the owners

Examples of well-known C corporations include:

Apple
MacDonald's
Target
Microsoft
Starbucks

These are all large corporations. C corporations are not always suitable for small businesses. If your business is not so large, you want to consider the following:

Do you need or intend to live off the profits made via your business? If so, keep in mind that under a C corporation, profits are essentially taxed twice, so a pass-through entity like an S corporation or a limited liability company (LLC) might be the better choice.
Do you plan to keep your business forever? If you do not plan to sell your business, a C corporation may not be a good option for various reasons. On the other hand, if you intend to sell, say after five years of operation, a C corporation can be advantageous upon cashing out.
Do you want to keep your business operations simple? If so, as demonstrated above, keep in mind that C corps demand more paperwork, recordkeeping, and regulatory compliance.
Does personal liability matter a lot to you? If so, C corps are good, but there are also other options, like forming an S corp and an LLC.

So, as in everything related to business formation and operations, speaking to a corporate attorney will be in your best interests so you can make sure you are acting in the most advantageous and strategic way.

Contact a Corporate Lawyer in Wisconsin Today

If you are thinking about incorporating a business as a C corporation, our business law lawyer in Wisconsin can help you make sure you choose the right structure to form your business. C corporations offer a lot of benefits, but there are many factors to consider, especially because there may be better options for your business needs. Contact us today by either filling out the online form or calling us at 414-253-8500 to schedule a free consultation.

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Frequently Asked Questions (FAQs)

1. What is the difference between a C Corporation and an S Corporation?

A C corporation and an S corporation differ mainly in terms of taxation and ownership rules. A C corporation faces double taxation, once at the corporate level and again at the individual level when dividends are distributed to shareholders. S corporations, on the other hand, avoid this double taxation as they are pass-through entities for tax purposes. Ownership rules also vary between the two. A C corporation can have unlimited shareholders and multiple classes of stocks, whereas an S corporation is limited to 100 shareholders and can only have one class of stock. Also, all S corporation shareholders must be U.S. citizens or residents.

2. What are the main advantages of forming a C Corporation in Wisconsin?

C Corporations in Wisconsin offer several advantages. These include limited liability, meaning shareholders are only responsible for the amount they invested in the corporation; flexible ownership and management, which allows changes through buying and selling shares; and the ability to raise large amounts of capital due to an unlimited number of shareholders. There are also no shareholder restrictions, meaning C corporations can have foreign shareholders and issue more than one class of stock.

3. What are the disadvantages of a C Corporation in Wisconsin?

The main disadvantages of C Corporations are double taxation, increased regulatory oversight, and potentially higher setup and running costs. Double taxation occurs as the corporation is taxed at the corporate level, and dividends distributed to shareholders are also taxed. Increased regulations mean that C corporations have to comply with stringent record-keeping and reporting obligations. Finally, the setup and running costs for a C corporation can be higher due to filing fees and potential annual state-based fees.

4. What types of businesses are best suited as C Corporations?

Typically, businesses that require venture capital, want to reinvest profits back into the business for growth, desire flexible profit sharing among owners, or aim to own real estate may find a C corporation structure beneficial. It's important to note that the C corporation structure may not be the best choice for every business, especially small businesses. For these, considering the company's long-term goals and consulting with a corporate attorney can help in deciding the best structure.

5. How can I get legal advice on forming a C Corporation in Wisconsin?

If you're considering incorporating a business as a C Corporation in Wisconsin, it's highly recommended to seek legal advice to ensure you're making the best decision for your specific situation. A corporate attorney can help you understand the potential benefits and drawbacks of forming a C Corporation, and guide you through the setup process. You can contact a corporate lawyer at 414-253-8500 or fill out the online form on our website to schedule a free consultation.