Gregory Gilman, CEO of RxVantage (www.rxvantage.com), gets into detail on what a C-Corporation is. This information will help when trying to understand some of the legalities of a C-Corporation.
- C-Corp: a legal entity of its own
- All employees are protected from liability of the business
- No restrictions on shareholder amounts or the class of the stock
- Strict governance requirements to maintain the liability protection
- Typical entity for securing venture funding
So I get to ask fairly frequently what is C-Corp and what should I know about it, right? I’m thinking about setting up an entity, should I set up a C-Corp?
So the first question is -- what is a C-Corp? And it’s important to know that a C-Corp is a separate type of legal entity. So once you’ve created it and you’ve gone through all the formalities and filing requirements, you now have a separate legal entity. This means that the business itself can protect the owners of the business as well as the employees, shareholders and directors from liability that is incurred by the business.
The advantage to a C-Corp is that there’s an unlimited number of shareholders and it can issue multiple classes of stock. So most large public companies are in fact C-Corps.
The operating requirements for a C-Corp are much more strict that they are for an LLC, for example. So there are strict corporate governance requirements that must be followed in order to prevent the loss of the shield of liability that exists for the C-Corp.
It is also the most common entity for venture funding. So if as an entrepreneur, you’re thinking about going after venture funding, keep in mind that they will almost always want you to be a C-Corp before they write a check to your business.
So for most entrepreneurs, a C-Corp is probably more trouble than it’s worth and less they’re going to go after outside funding. If you’re a first time entrepreneur, there are other business entities that probably suit your needs better than a C-Corp. The corporate governance requirements for a C-Corp are pretty strict. So unless you’re going after that big VC investment, there are other options that are probably better for you.