C Corporation
A traditional corporate structure that is taxed as a separate legal entity from its owners, paying corporate income tax on profits before any dividend distributions to shareholders.
What Is a C Corporation?
A C corporation is the default federal tax classification for corporations under Subchapter C of the Internal Revenue Code. The entity itself pays income tax on its profits at the corporate rate (currently 21 percent), and shareholders pay tax again on dividends received — a phenomenon known as double taxation. C corps are the preferred structure for businesses seeking outside investment, going public, or operating internationally.
Advantages
- Unlimited number of shareholders, including foreign investors and entities - Multiple classes of stock (common, preferred) with different rights - Easier to raise capital through stock offerings - Preferred by venture capital investors and required for traditional IPOs - Tax-deductible employee benefits (health insurance, retirement plans)
Tax and Compliance Considerations
The primary disadvantage is double taxation: profits are taxed at the corporate level, then again when distributed as dividends. Section 1202 of the Internal Revenue Code provides significant tax breaks for qualified small business stock (QSBS) held in C corps for at least five years. C corps must file Form 1120 annually, hold required board and shareholder meetings, maintain corporate minutes, and observe other formalities. Failure to follow these formalities can expose shareholders to personal liability under the doctrine of piercing the corporate veil.