C Corp is a confusing phrase to a lot of people. Really, the IRS uses this term “C-Corp” for the purpose of distinguishing a for-profit Corporation from one that has elected to be taxed as an S Corporation.
What is a C Corporation?
The Corporation is a legal entity separate from its owners, and it provides a significant degree of personal liability protection for its owners (shareholders). Ownership is through holding stock in the company, which may be held privately or publicly. The ability to sell stock in the business offers an opportunity to raise capital to fund initiatives and fuel growth. Status as a Corporation often makes a business more attractive to outside investors, as well.
A Corporation must file its own income tax return (IRS Form 1120). The company receives deductions for business expenses, which reduces its tax liability when it earns revenue. It may not deduct as expense money paid to stockholders as dividends, and the individual stockholders who receive dividends must pay income tax on that income. The term “double taxation” is often used to describe how the profit of a corporation is taxed, and then profits distributed as dividends (which are not deductible as expenses to the business) are taxed to shareholders.
Incorporating a business involves filing Articles of Incorporation with the state, and it comes with higher startup costs and more administrative complexity than running a business as a Sole Proprietorship, Partnership, or LLC. A Corporation must have bylaws, and a board of directors, hold meetings on a regular basis and abide by other regulations to maintain its status.