The standard legal structure for a corporation under U.S. law. The C refers to Subchapter C of Chapter 1 of the Internal Revenue Code, which governs how the entity’s profits are taxed. It is the most common business structure for large companies and those intending to raise capital from institutional investors or go public.
Key Characteristics
A C-Corp is a separate legal entity from its owners. This separation provides the strongest protection against personal liability; the corporation is responsible for its own debts and legal obligations, and shareholders generally risk only their investment in the company.
- Double Taxation: This is the defining tax trait of a C-Corp. Profits are taxed first at the corporate level via a flat federal corporate income tax (currently 21%). If the corporation then distributes those profits to shareholders as dividends, they are taxed again at the individual level on the shareholders’ personal tax returns.
- Unlimited Shareholders: Unlike other structures, a C-Corp can have an unlimited number of shareholders. These shareholders can be individuals, other corporations, or international investors.
- Capital and Stock Classes: C-Corps are the preferred vehicle for venture capital because they can issue multiple classes of stock, such as Preferred Stock (which grants investors special rights) and Common Stock.
Advantages & Use Cases
- Scalability: It is the only entity suitable for an Initial Public Offering (IPO).
- Tax Planning: C-Corps can retain earnings within the business to fund future growth at the corporate tax rate rather than forcing income through to owners.
- Fringe Benefits: Many employee benefits and insurance premiums are fully deductible for the corporation.
