A C-corporation is a tax term referring to one of two ways a corporation can be taxed.
Tax Terminology
The terms “C-corp” and “S-corp” have meaning in the tax world.
For legal purposes, there’s no such thing as a C-corp or an S-corp. For legal purposes, there’s just a “corporation.”
The “C” and “S” refer to subchapters of the Internal Revenue Code that cover corporate taxation.
C-corporations are taxed under Subchapter C, while S-corporations are taxed under Subchapter S.
Election
When a corporation is formed it is taxed as a C-corporation by default, but it can elect to be taxed as an S-corporation.
LLCs are not corporations (the “C” stands for “company”) but they can elect to be taxed as either a C-corp or as an S-corp.
Differences Between C- and S-
The differences between C-corps and S-corps are difficult to get into in these glossary entries, which are intended to be basic overviews. But here’s a sampling of the differences:
- S-corporations share many of the same characteristics as partnerships. S-corporations themselves do not pay income tax. Instead, the end result of S-corp operations pass through to the shareholders, who are taxed on their share of corporate profit.
- C-corporations exist as completely separate entities from the shareholders. The end result of corporate operations stay within the corporation, and the corporation pays income tax itself.