# What Is a C Corp? Definition, Pros & Cons, and Taxes

> **Definition**
>
> A C corp is a form of corporation that’s owned by its shareholders. Both must pay taxes on the business’s income.

## What Is a C Corporation?

C corporations or "C corps" are the most prevalent of corporations. They pay corporate taxes on their [earnings](https://www.investopedia.com/terms/e/earnings.asp) before distributing profits to their shareholders in the form of dividends if they choose to do so. Shareholders must then also pay personal income tax on that income received. This creates double taxation on the same earnings.

C corps can be compared with [S corporations](https://www.investopedia.com/terms/s/subchapters.asp) and [limited liability companies (LLCs)](https://www.investopedia.com/terms/l/llc.asp) which also separate a company's assets from its owners but with different legal structures and tax treatment. Another type of organization is the B corporation or benefit corporation which is a for-profit firm but different from C corps in purpose, accountability, and transparency. They're not different in how they’re taxed, however.

### Key Takeaways

*   A C corporation legally separates its owners' or shareholders' assets and income from that of the corporation.
*   C corporations limit the liability of investors and firm owners. The most that they can lose in the business's failure is the amount they've invested in it.
*   C corporations are mandated to hold annual meetings.
*   They must have a board of directors that's voted into place by shareholders.

![C-Corp: A business structure in which owners,or shareholders, are taxed separately from the entity.](https://www.investopedia.com/thmb/UyAIUfN1XvnpFXNEHDiIJ9lpx4Q=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/c-corporation.asp-finalv2-e10151182a7e463795f93f84c32d176c.png)

*One of the advantages of C corps is the ability to attract investors and raise capital through stock offerings. — Investopedia / Ryan Oakley*

## How C Corporations Work

C corporations can pay corporate taxes on [earnings](https://www.investopedia.com/terms/e/earnings.asp) before distributing their profits to their shareholders in the form of dividends if they choose to do so. Individual shareholders are then subject to personal income taxes on the dividends they receive. The tax on corporations is 21% as of 2025.

Another clear advantage is the separation between management and the owners or shareholders. This allows longer continuity of C corporations beyond the life of the owners which can include partial owners called shareholders. It allows the institutionalization of these corporations and the possibility of passive income through ownership for the owners.

A C corporation is required to hold at least one meeting each year for shareholders and directors. Minutes must be maintained to display transparency in business operations. A C corporation must keep voting records of the company's directors and a list of the owners' names and ownership percentages. The business must have bylaws on the premises of the primary business location. C corps will file annual reports, financial disclosure reports, and financial statements.

> **Important**
>
> The Corporate Transparency Act created a beneficial ownership registry for C corporations in 2021 requiring the reporting of "information about the individuals who ultimately own or control them" beginning in 2024. The goal was to eliminate corporate anonymity that resulted in serious issues including terrorism and drug trafficking. The requirement was lifted as of March 2025.

## How to Create a C Corporation

Creating a C corporation is similar to the process of formalizing other types of business entities. These are the procedures for establishing one:

1.  Choose and register an unregistered business name.
2.  File the [articles of incorporation](https://www.investopedia.com/terms/a/articlesofincorporation.asp) with the Secretary of State according to the laws of that state.
3.  C corporations offer stock to shareholders who become owners of the corporation.
4.  All C corporations must file Form SS-4 to obtain an employer identification number (EIN). Requirements vary across jurisdictions but C corps are required to submit state, income, payroll, unemployment, and disability taxes. There may be other regulatory requirements depending on what business the company operates in.
5.  Corporations must establish a board of directors to oversee management and the operation of the entire firm. Appointing a board of directors seeks to resolve the [principal-agent dilemma](https://www.investopedia.com/terms/p/principal-agent-problem.asp) in which moral hazard and conflicts of interest can arise when an agent works on behalf of a principal.

> **Fast Fact**
>
> C corporations are one of the most common business structures.

## Advantages and Disadvantages of C Corporations

C corporations limit the personal liability of the directors, shareholders, employees, and officers. The legal obligations of the business can't become a personal debt obligation of any individual associated with the company. The C corp continues to exist as owners change and members of management are replaced.

A C corporation can have many owners and shareholders but it's required to register with the Securities and Exchange Commission (SEC) when selling securities. The ability to offer shares of stock allows the corporation to obtain large amounts of capital which can fund new projects and future expansions.

There are some drawbacks, however. Filing the articles of incorporation for a C corp can be more expensive than other business structures and incur greater legal fees. They're also subject to greater regulatory scrutiny which can increase the company's legal expenses.

There are also tax considerations. The profits of a C corporation are effectively [taxed twice](https://www.investopedia.com/terms/d/double_taxation.asp), first when the company files its income taxes and again when those profits are distributed as dividends. Shareholders in a C corporation can't deduct business losses on their tax returns, unlike an S corp.

Pros

*   C corps provide limited liability for directors, shareholders, and other company officers.
    
*   C corps can raise capital by issuing and selling shares of stock.
    

Cons

*   C corporations must register with the SEC upon reaching certain thresholds.
    
*   They're subject to greater regulation than other business structures, incurring higher legal fees.
    
*   Shareholders can't deduct their losses, and business profits are double-taxed as dividends are issued.
    

## C Corporation vs. S Corporation

An S corporation is another type of business structure that allows a company to pass its income, deductions, and losses to its shareholders. Both a C corp and an S corp offer limited liability protection and the process of incorporation is similar for both. The main differences relate to taxation and ownership.

One major disadvantage for C corporations is that profits are effectively taxed twice, first on the company's income taxes and again when shareholders receive dividends. An S corporation is a "pass-through" entity. It doesn't pay corporate income taxes. Profits are instead taxed at the shareholder level.

S corporations also have greater restrictions on ownership. A C corporation can have an unlimited number of shareholders but an S corporation can have no more than 100 shareholders. An S corp can't be owned by a C corp, another S corp, or a limited liability entity.

## What's the Difference Between a C Corporation and an S Corporation?

An S corporation is similar to a C corporation in that both allow the owners and officers of the business to be legally distinct from the business itself. There are important differences in taxation, however. An S corp is a "pass-through" entity. It can pass profits and tax credits on to its shareholders. The profits of a C corp are taxed twice, first as corporate income and again as shareholder dividends.

## What's the Difference Between an LLC and a C Corporation?

A [limited liability company](https://www.investopedia.com/articles/investing/091014/basics-forming-limited-liability-company-llc.asp) or LLC is another business structure that shields its owners from the liabilities of the business entity but an LLC is more suited to a small business or sole proprietorship. The profits of an LLC aren't taxed directly but are passed on directly to the company's members, unlike a C corporation.

## How Do You Report Income From a C Corporation?

A C corporation should use IRS Form 1120 to report its corporate income taxes. The company may also have employment, Social Security, or Medicare tax liabilities and these can increase the cost of filing taxes compared to the other forms of companies.

## The Bottom Line

A C corporation is a business structure that allows the owners of a business to be legally separate from the business itself. This allows a company to issue shares and pass on profits while limiting the liability of the shareholders and directors.

> **Article Sources**
>
> 1.  U.S. Small Business Administration. "[Choose a Business Structure](https://www.sba.gov/business-guide/launch-your-business/choose-business-structure)."
>     
> 2.  Internal Revenue Service. "[Forming a Corporation](https://www.irs.gov/businesses/small-businesses-self-employed/forming-a-corporation)."
>     
> 3.  Internal Revenue Service. "[Publication 542, Corporations](https://www.irs.gov/pub/irs-pdf/p542.pdf)." Page 15.
>     
> 4.  OpenStax. "[Entrepreneurship; Chapter 13.2, Corporations](https://openstax.org/books/entrepreneurship/pages/13-2-corporations)." Rice University, 2020
>     
> 5.  Financial Crimes Enforcement Network. "[Beneficial Ownership Information](https://www.fincen.gov/boi)."
>     
> 6.  Financial Crimes Enforcement Network. "[U.S. Beneficial Ownership Information Registry Now Accepting Reports](https://home.treasury.gov/news/press-releases/jy2015)."
>     
> 7.  Wolters Kluwer. "[What Is a C Corporation?](https://www.wolterskluwer.com/en/expert-insights/what-is-a-c-corporation)"
>     
> 8.  Internal Revenue Service. "[Employer Identification Number](https://www.irs.gov/businesses/employer-identification-number)."
>     
> 9.  Internal Revenue Service. "[Business Structures](https://www.irs.gov/businesses/small-businesses-self-employed/business-structures)."
>     
> 10.  U.S. Securities and Exchange Commission. "[Registration Under the Securities Act of 1933](https://www.investor.gov/introduction-investing/investing-basics/glossary/registration-under-securities-act-1933)."
>      
> 11.  Internal Revenue Service. "[S Corporations](https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations)."