A C corporation (also known as a regular, standard or traditional corporation) is a legal entity that is separate and distinct from its owners. A C corporation is owned by shareholders, who elect a board of directors to oversee the management of the company. The board of directors hires officers to manage the day-to-day operations of the corporation.
One of the main characteristics of a C corporation is that it has unlimited life. This means that the corporation continues to exist even if the owners change or die. A C corporation also has the ability to issue stocks, which can be bought and sold by the shareholders.
A C corporation is taxed as a separate entity, meaning that the corporation itself pays taxes on its profits. Any profits distributed to the shareholders in the form of dividends are also taxed at the individual level as capital gains. This is known as double taxation, as the profits of the corporation are taxed at both the corporate and individual level.
Because personal income tax rates can be almost double business income tax rates, and capital gains tax rates are typically the lowest of all three, this ‘double taxation’ can lead to lower tax payments compared to using the S Corp structure for both the business and the shareholders.
C corporations are subject to more complex regulations and reporting requirements than other business structures, such as sole proprietorships and partnerships. They may also be more expensive to set up and operate due to the need for meetings and record-keeping.
However, C corporations offer some advantages, such as the ability to issue stocks and the potential for tax-free contributions to employee benefits plans. It’s important to consider the specific needs and goals of your business when deciding whether a C corporation is the right choice.