C Corporation
Definition
The default corporate structure under U.S. tax law, where the corporation is a separate tax entity that pays corporate income tax at a flat 21% rate. When profits are distributed as dividends to shareholders, they are taxed again at the individual level (qualified dividends at 0%, 15%, or 20%), resulting in "double taxation." C corps have no restrictions on number or type of shareholders and can issue multiple classes of stock. They are commonly used by companies seeking venture capital or planning an IPO.
Example
Your C corporation earns $500,000 in profit and pays $105,000 in corporate tax (21%). If it distributes the remaining $395,000 as qualified dividends, shareholders pay an additional 15% ($59,250), for a combined tax rate of approximately 32.8%.
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