C corporation refers to any corporation that, under United States income tax law, is taxed separately from its owners. It is distinguished from an S corporation, which is not taxed separately. Most major companies (and many smaller companies) are treated as C corporations for U.S. income tax purposes.
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Shareholders of a corporation may elect to treat the corporation as a flow-through entity known as an S corporation. An S corporation is not itself subject to income tax; rather, shareholders of the S corporation are subject to tax on their pro rata shares of income based on their shareholdings.[1] To qualify to make the S corporation election, the corporation's shares must be held by resident or citizen individuals or certain qualifying trusts. Unlike corporations treated as S corporations, a corporation may qualify as a C corporation without regard to any limit on the number of shareholders, foreign or domestic.
In the United States, corporations are formed under laws of a state or the District of Columbia. Procedures vary widely by state. Some states allow formation of corporations through electronic filing on the state's web site[2] or very quickly.[3] All states require payment of a fee (often under USD200) upon incorporation.[4] Corporations are issued a "certificate of incorporation" by most states upon formation. Most state corporate laws require that the basic governing instrument be either the certificate of incorporation or formal articles of incorporation. Many corporations also adopt additional governing rules knows as bylaws. Most state laws require at least one directors and at least two officers, all of whom may be the same person. Generally there are no residency requirements for officers or directors.
Corporations are not required to issue financial statements in the United States. Financial statements may be presented on any comprehensive basis, including an income tax basis. There is no requirement for appointment of auditors.
The laws of most states permit distribution of any amount of money or property by a corporation to its shareholders that does not render the corporation insolvent. Any distribution from the earnings and profits of C corporations is treated as dividend for U.S. tax purposes.[5] Earnings and profits is a tax concept similar to retained earnings.[6] Exceptions apply to treat certain distributions as made in exchange for stock rather than as dividends. Such exception include distributions in complete termination of a shareholder's interest[7] and distributions in liquidation of the corporation.[8]
As of 2010[update], the IRS lists the following tax rate schedule for "most corporations", except "qualified personal service corporations" and certain other cases[9]:
| Taxable Income ($) | Tax Rate | Of amount over | |
|---|---|---|---|
| Over | But not over | ||
| $0 | $50,000 | 15% | $0 |
| 50,000 | 75,000 | 25% + $7,500 | 50,000 |
| 75,000 | 100,000 | 34% + 13,750 | 75,000 |
| 100,000 | 335,000 | 39% + 22,250 | 100,000 |
| 335,000 | 10,000,000 | 34% + 113,900 | 335,000 |
| 10,000,000 | 15,000,000 | 35% + 3,400,000 | 10,000,000 |
| 15,000,000 | 18,333,333 | 38% + 5,150,000 | 15,000,000 |
| 18,333,333 | — | 35% | 0 |
See IRS Publication 542, Corporations for details about taxation of corporations.