C Corporation Basics.

In plain English

A C corporation is the default kind of corporation and a fully separate legal and tax entity from its owners. The corporation files its own return (Form 1120) and pays corporate income tax on its profits. When it then distributes profits to shareholders as dividends, those shareholders pay tax again on their personal returns, which is known as double taxation. C corps offer strong liability protection, can have unlimited shareholders, and can issue multiple classes of stock, which is why most companies that raise venture capital or go public are C corps.

01Why it matters

Double taxation means profits paid out to owners are taxed twice, while profits kept inside the company are taxed once, at the corporate rate. Outside investors and multiple classes of stock are what the structure allows that a pass-through does not.

02The math, step by step

A startup earns $200,000 in profit and pays corporate income tax on it. It then pays out $50,000 in dividends to its founders, who each owe personal tax on their share. The same $50,000 is effectively taxed twice: once at the company level and once at the shareholder level. The corporate income tax rate is 21%, set by law.

03What this is NOT

04Receipts

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