A C corporation is any corporation that does not qualify or elect to be an S corporation under the Internal Revenue Code. A C corporation is a legal structure for a corporation where the company’s assets are separate from the owners’ assets. The owners of a C corporation are the shareholders. Shareholders contribute the money or assets the corporation uses to conduct its business and the corporation issues shares of its stock to shareholders as evidence of ownership. Shareholders are entitled to any dividends the corporation pays, and if the corporation liquidates, they are entitled to all of the corporation's assets after all creditors are paid.
Because a C corporation is a legal entity distinct from its owners, it can enter into contracts and is liable for its debts. This structure allows for limited liability for shareholders where the owners are shielded from being personally liable for the liabilities of the corporation.
For tax structure, the shareholders are taxed separately from the corporate entity for the income received from the entity. Additionally, C corporations are also subject to corporate income taxation. This creates double taxation. A C corporation can be contrasted with an S corporation, a corporation with 100 shareholders or less, which may pass income to the shareholders without paying taxes at the corporate level.
C corporations are the most prevalent form of corporate organization, and most stock corporations are C corporations. A C corporation is preferred compared to other forms of business for high income/high tax bracket owners. However, a C corporation has disadvantages as well, such as double taxation, high expense to start, and complex regulations and formalities.
See also: 26 U.S.C. § 11 and 26 U.S.C. § 1361(a)(2).
[Last updated in August of 2022 by the Wex Definitions Team]
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