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A C Corporation, or C Corp, is a legal business structure recognized as a separate legal entity from its owners. It is the default form of corporation under U.S. federal income tax law and is governed by Subchapter C of the Internal Revenue Code—hence the name “C” Corporation.
This structure provides the strongest protection to its owners (shareholders) from personal liability, allows for unlimited growth potential, and tax audit is typically used by larger companies, especially those seeking outside investors or going public.
1. Separate Legal Entity
The corporation is treated as its own “person” in the eyes of the law.
It can enter into contracts, sue and be sued, own assets, and incur liabilities separately from its shareholders.
2. Limited Liability
Shareholders are only liable up to the amount of their investment.
Their personal assets are protected from the corporation’s debts and lawsuits.
3. Unlimited Shareholders
Can have an unlimited number of shareholders.
Shareholders can be individuals, corporations, partnerships, or foreign entities.
4. Multiple Classes of Stock
Can issue multiple classes of stock (e.g., common and preferred).
This allows for complex equity structures often needed in venture capital and public markets.
5. Double Taxation
The corporation pays taxes on its profits at the corporate tax rate.
Then, shareholders pay taxes again on dividends or distributions received.
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Advantages of a C Corporation
Strong liability protection for owners with the domestic corporation.
Unlimited potential for growth through sale of stock.
Attracts investors, including venture capital and institutional investors.
Perpetual existence – continues even if owners change or die.
Ability to offer stock options and employee benefits like retirement plans and insurance.
