Definition
A C-corporation is a corporation taxed as a separate entity, paying corporate income tax on its profits.
How It Works
The corporation pays tax on its earnings, and shareholders pay tax again on dividends, creating potential double taxation. C-corps offer benefits such as broader fringe benefits, easier outside investment, and eligibility for the QSBS exclusion.
Example
A startup organizes as a C-corp so early investors and founders can pursue the QSBS capital gains exclusion on a future sale.
When It Works Best
It works best for businesses planning to raise outside capital, retain earnings for growth, or position for QSBS treatment.
Who It Applies To
Businesses seeking outside investment or specific corporate benefits.
Watch-Outs
Double taxation on distributed profits is the main drawback, so the structure favors reinvestment over current distributions.
