A C Corporation is a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity. This type of corporation is recognized as a distinct legal entity, meaning it can enter contracts, incur debts, and be liable for its own actions, independent of its owners.
C Corporations are subject to corporate income tax on their profits, and then shareholders are taxed again on dividends they receive, creating what is commonly referred to as "double taxation." This is a significant feature that distinguishes C Corporations from S Corporations, which are typically pass-through entities for tax purposes.
C Corporations can have an unlimited number of shareholders, making them an attractive option for businesses seeking to raise capital through the sale of stock. They can also issue multiple classes of stock, which provides flexibility in ownership and investment strategies.
For example, a tech startup may choose to form a C Corporation to attract venture capital. By doing so, it can issue preferred stock to investors, allowing them to have certain benefits, such as priority on dividends or liquidation preference. This structure may also offer the startup the advantage of going public in the future through an Initial Public Offering (IPO), further enhancing its ability to raise funds.
In summary, a C Corporation is a structured business entity that offers liability protection to its owners, flexibility in ownership, and access to a broader range of capital-raising options, albeit with the potential drawback of double taxation.