A C corporation is a corporation that is taxed at two levels. First, the corporation pays corporation taxes on corporate profits. Then, with any money left over, the corporation may distribute profits to the shareholders. These profits, or dividends, are taxed to the shareholders. Thus with a Corporation there is “double taxation”. The “C” refers to an IRS code section. Despite the double taxation, C Corporations offer many planning and benefit opportunities.
Corporations have been used for over 500 years to limit owners’ liability and thus encourage business investment and risk taking. Their use for this purpose continues to this day.
You will hear about both C corporations and S corporations. Both are corporations with charters granted by the state of organization. You can organize in Nevada for the best asset protection laws, for example, and qualify to do business in California. In that case, you will have one corporation paying annual fees in two states (which many people do).
The C and the S refer to IRS Code Sections. C corps feature a double taxation – one tax at the company level and another tax on profits distributed to shareholders. This double tax is why many people consider S corps, which has only one level of tax. But there are restrictions on ownership of S corps, where as there are no such limits on C corps.
Let Corporate Direct help you decide which corporation is best for you, or learn more about the strengths and weaknesses of different entity types from our book “Start Your Own Corporation“. See the rest of Garrett Sutton‘s Rich Dad series of books for business owners.