A C corporation is a separate legal entity owned by shareholders. C corporations are taxed annually on their earnings and the shareholders are taxed on these earnings when distributed as dividends.
Key Features
- A corporation must register with the California Secretary of State before conducting business operations and file appropriate paperwork.
- A corporation must create bylaws (e.g., how the corporation will operate) that cover items such as stockholder meetings, director meetings, number of officers, and their responsibilities.
- Based on the corporation’s separate legal entity status, the owners of the corporation are not liable for the losses of the businesses and creditors may only look to the corporation and the business assets for payment.
- A separate bank account and separate records are required with this form of entity.
- The owners have ultimate control of the corporation; but must elect directors who in turn elect officers for the company. The directors make the major decisions, while the officers make the day-to-day decisions.
- A corporation’s life is perpetual in nature.
- Ownership is easily transferred through the sale of stock and new owners can be easily added by the issuance of additional stock.
- This form of ownership is more costly to set up and maintain than a sole proprietorship or partnership. Consult an attorney for guidance on setting up your corporate entity.
Filing Guidelines
- Corporations that organize in California, register in California, conduct business in California, or receive California source income, must file California Form 100.
- The return due date is the 15th day of the third month after the close of the taxable year.
- A Corporation is taxed on its net income at a rate of 8.84 percent, with a minimum tax of $800.
- The minimum franchise tax ($800) is due the first quarter of each accounting period and must be paid whether the corporation is active, inactive, operates at a loss, or files a return for a short period of less than 12 months.
- For the first taxable year beginning on or after January 1, 2000, the corporation will compute its tax liability by multiplying its state net income by the appropriate tax rate and will not be subject to the minimum franchise tax.
Estimated Tax
- The estimated tax is payable in four installments.
- Installments are due and payable on April 15th, June 15th, September 15th, and December 15th.
- Corporations complete Form 100-ES to report their estimated taxes.
- For taxable years beginning on or after January 1, 2009, corporations are required to pay 30 percent of the estimated tax liability for the first and second required installments and 20 percent of the estimated tax liability for the third and fourth required installments. Prior to this law change, each installment was 25 percent of the total estimated tax due.