A C Corporation is a form of corporation in which the business entity is taxed separately from its owners (called shareholders). Corporations are treated as entirely distinct entities from the individuals that own them. They can be either privately owned or publicly traded.
Inherent to corporations is a concept known as the ‘corporate veil.’ This is the key to individual owners being free from liability for debts incurred by a corporation. This also often allows owners to name additional officers to manage a corporation, while protecting their own individual interests in the event these officers make poor business decisions.
C Corporations are taxed at the corporate level with an IRS tax rate schedule all their own, often at higher tax rates than comparable individual income. Wages paid to officers are taxed at individual income tax rates, while distributions to shareholders are taxed as dividends. This arrangement leads to what is often referred to as “double taxation,” wherein individuals may end up paying taxes on post-tax (already taxed) income from the corporations they share ownership in.
- Limited individual liability due to ‘corporate veil’
- ‘Shares’ system makes transfer of ownership simple
- State statutes provide specific rules for governance, creating predictability for investors and court proceedings
- Taxation imposed on corporation may limit self-employment tax by reducing individual tax rates for distributions
- Effectively leads to ‘double taxation’ by taxing individual distributions after income taxes have already been paid at the corporate level
- Filing fees may be higher, and bylaws and operating agreements may have to be more specific
- Managers will need to be named specifically as officers of the corporation, or will require corporate resolutions specific to certain actions